Divorce can be an emotionally and financially overwhelming time, and amongst the most important decisions you’ll have to make is what happens to your home. Whether you’re looking to stay in the family home or move to a new property, understanding your home loan options is crucial. Here, we’ll explore the different home loan options available to home owners going through a divorce, including refinancing, selling the property, and buying a new home, as well as potential government support to get you back on your feet.
We’re getting divorced, now what?
Divorce can have a significant effect on your mortgage and overall financial situation. If you and your ex-partner were both responsible for the home loan, both of you may still have obligations to the lender, even after the divorce is finalised.
Common questions that often arise include:
– Should I keep the family home or sell it?
– How do we divide the equity in the property?
– Can I qualify for a new mortgage after the divorce?
Let’s dive into the available options and explore what works best for you.
Option 1: Refinancing the Mortgage in One Person’s Name
If you want to stay in the family home, refinancing is an option worth considering. Refinancing means applying for a new mortgage to replace the old one, with the loan now in only one person’s name.
Key Considerations for Refinancing:
– Eligibility: If you’re looking to refinance the mortgage solely in your name, you’ll need to prove your financial capacity to the lender. They’ll look at your income, credit score, existing debts, and whether the property value is sufficient for the refinance.
– Dividing the Equity: Before refinancing, you’ll need to agree with your ex-partner on how to split the property’s equity. This may involve paying your ex-spouse a lump sum for their share of the property. Ensure that both parties agree on this division, which may be legally formalised as part of the divorce settlement.
– Loan Terms: After refinancing, you’ll take full responsibility for the mortgage. Ensure you can afford the repayments on your own, and that you can comfortably manage the home loan without additional financial stress.
Option 2: Selling the Family Home
For many Australians going through a divorce, selling the home may be the best option. Selling the property allows both parties to settle any mortgage debts, and any remaining equity can be divided between the two parties.
Steps to Consider When Selling the Home:
– Market Conditions: Before making a final decision to sell, assess the property market. If property values are high in your area, selling could provide a larger share of equity. If property values have decreased, you may need to consider waiting for a better market before selling.
– Real Estate Agent: Consult with a reputable real estate agent to help sell the property. A good agent can help you get the best price and manage the sale process.
– Debt Repayment: Once the home is sold, the existing mortgage will be paid off from the sale proceeds. Any remaining funds after paying off the mortgage can then be split between both parties. If there’s any shortfall, both parties may need to contribute to cover the remaining debt.
Option 3: Buying a New Home After Divorce
After a divorce, many individuals in Australia choose to buy a new home. This can be the next logical step if the family home is sold, or if one partner is moving out and wants a fresh start.
Things to Consider When Buying a New Home:
– Affordability: Without the combined income from a partnership, your ability to afford a home may be more limited. Be realistic about your budget and what you can afford, factoring in deposit, loan repayments, and other costs like stamp duty and legal fees.
– Deposit and Costs: In Australia, most lenders require a deposit of at least 10-20% of the home’s value. You’ll also need to factor in costs like stamp duty, insurance, and other fees that come with purchasing a new home.
– Credit Score: If your credit score has been impacted by the divorce, it may affect your chances of qualifying for a new mortgage. Check your credit report and make sure it’s in good shape before applying.
– Mortgage Options: There are several lenders in Australia that offer products specifically designed for people who are going through a divorce or separation. These loans may offer more flexible lending criteria to accommodate your changed financial situation.
Here are a few lenders that could be helpful for someone buying a new home after divorce:
– AMP Bank – AMP offers home loan options for individuals looking to purchase property after a separation. They may provide more flexibility for those with adjusted income or credit scores.
– ANZ – ANZ offers a variety of home loan options, including those for divorced individuals. Their loans can be tailored to suit your specific needs, with options for lower deposit amounts if required.
– Macquarie Bank – Macquarie is known for offering flexible home loans, including for those going through a divorce. Their products often provide more lenient terms, especially for applicants with a clear financial record.
– Bankwest – Bankwest offers flexible loan options and is known to accommodate individuals going through separation or divorce. Their process includes a thorough but understanding assessment of your situation.
Ask a mortgage broker which lender will be most suitable for your situation. We have access to over 80 different lenders, so we can find a home loan that is just right for you, right now. The best part is, you have someone to support you through it and answer all of your questions as they arise. At Base Home Loans, our job is to make it easy for you because life is stressful enough.
Option 4: Seeking a Mortgage After Divorce with a Co-Applicant
If you’re not ready to buy a home on your own, you might consider purchasing a property with a co-applicant, such as a family member or a close friend. This can make it easier to secure a loan and afford repayments.
Key Considerations for Co-Applicants:
– Shared Financial Responsibility: Both you and your co-applicant will be responsible for the mortgage repayments. Make sure both parties are clear on their financial obligations and have a formal agreement in place.
– Lender Requirements: Lenders will assess both applicants’ credit scores, income, and debts. If your co-applicant is financially stable, this can improve your chances of securing a loan.
– Legal Considerations: It’s essential to consult a lawyer and get a formal agreement in place regarding the ownership of the property and how responsibilities will be shared in the future.
If you don’t want to share ownership of your next property, but you need help with a deposit, you could also consider asking a family member to be a Guarantor. You can read more about what’s involved in being a Guarantor here.
Government Support: Family Home Guarantee and Other Schemes
In addition to the traditional home loan options, there are government schemes that may assist in securing a home after a divorce, especially if you have limited savings or deposit.
Family Home Guarantee (Family First Scheme):
The Family Home Guarantee, part of the Australian Government’s First Home Buyer initiative, provides a pathway to home ownership for single parents. This scheme allows single parents to purchase a home with just a 2% deposit and no lenders mortgage insurance (LMI). This is particularly useful for individuals who are separated or divorced and need assistance getting into the property market.
– Eligibility: To qualify, you must be a single parent with at least one dependent child, and you need to meet other general home loan eligibility criteria.
– Benefit: The Family Home Guarantee makes it easier for those going through a divorce to purchase a new home with a smaller deposit and avoid paying additional costs like LMI, which can be a significant financial burden.
First Home Owner Grant (FHOG):
In some states and territories, you may also be eligible for the First Home Owner Grant if you are buying your first home after the divorce. This government grant helps with the upfront cost of purchasing a home, though eligibility criteria vary depending on where you live in Australia.
Read more about getting a home loan as a single parent
Navigating the Financial and Legal Aspects of Divorce and Home Loans
Divorce affects many aspects of your finances, and your mortgage is one of the biggest considerations. It’s important to approach this process carefully to ensure that both parties can move forward with a fair and manageable financial plan.
Considerations for Managing the Financial Impact of Divorce:
– Work with a Divorce Financial Planner: A financial planner who specialises in divorce can help you understand how to divide assets, including the family home. They can also help you with planning for future financial stability.
– Get Legal Advice: A family lawyer can help ensure that property settlements and financial arrangements are legally binding and fair. This is especially important if there are disputes over the division of the home or the mortgage.
– Consult a Mortgage Broker: A mortgage broker can assist in finding the best home loan option for your specific situation, whether you’re looking to refinance, buy a new home, or secure a loan as a co-applicant. They have access to a wide variety of lenders and can tailor their recommendations to suit your needs.
Divorce can be a difficult and emotional journey, and deciding what to do with your home is an important part of moving forward. Whether you choose to refinance the mortgage, sell the family home, or buy a new property, understanding your home loan options is key to making informed decisions.
If you’re unsure about the best course of action for your situation, contacting a mortgage broker who understands the intricacies of divorce and home loans can be a great first step. With the right guidance, you can navigate this challenging time with greater financial clarity and security.
If you’re going through a divorce and need help with your home loan options, contact us today for expert advice and support. As experienced mortgage brokers, we are here to help you through every step of the process.
Disclaimer: The information provided on this blog is for general informational purposes only and does not constitute financial or professional advice. While we strive to provide accurate and up-to-date information, mortgage laws and regulations can change, and individual circumstances may vary. We recommend consulting with a qualified financial advisor or mortgage broker to assess your specific situation and needs. Base Home Loans is not responsible for any actions taken based on the content of this blog. Always conduct your own research and consider seeking professional advice before making financial decisions.
