If you are going through a divorce, one of the top questions likely on your mind is what to do with your marital home. This decision has financial, emotional, educational, and even social implications. Market conditions and current real estate dynamics can also play into how you divide your home. Recently, we talked with a Denver real estate expert, Shirley Jenkins, to get some insights on handling real estate during a divorce. In this post, Shirley outlines four considerations to keep in mind when weighing the pros and cons of selling your marital home.
Financial Considerations
First and foremost, either party who wishes to keep the marital home should meet with a financial specialist to understand whether financing the home on their own is an option. A financial advisor or lender can help you understand your bottom line numbers, determine whether you have sufficient assets, and help you understand the tax consequences of selling versus keeping your marital home. Regardless of what you decide to do with the home, recognize how important it is to meet with experts who will prevent you from making decisions based on emotions. Instead, experts ranging from financial advisors to tax specialists to mortgage lenders will give you facts and objective opinions based on numbers.
A financial advisor or certified financial divorce analyst can help you understand whether you can afford your home right now. They can also help connect with experts who can pre-qualify you for another home purchase if you want to see what options are out there. However, many lenders will pre-qualify you at the top of your range and underestimate the additional expenses of owning a home, including maintenance costs and taxes. Right now, many people buy a home over the list price based on appraisals of recent sales in the neighborhood, and many homes are currently overvalued. These dynamics lead to higher tax bills because taxes are based on your assessment value. Therefore, if you end up buying a new home, and buying high, you will have to pay significantly more on taxes than you likely planned for when you were prequalified for your home loan. This, combined with common job changes during a divorce and current market declines can inflate your overall home costs even more.
Emotional Considerations
Once you understand whether you have the financial means to keep your marital home, it’s time to consider the emotional element of this decision. Ask yourself whether you want the home and the memories that go along with it. Some divorcing couples tend to relive those memories again, ranging from good memories of bringing your kids home from the hospital as newborns to remembering rooms where heated arguments occurred during the marriage. Sometimes, a divorce is a great time for a fresh start and it is in your emotional best interest to detach from that part of your previous life.
No matter what you decide about the emotional aspects of the home, once you decide you want to sell it, it’s important to make a mental transition into seeing your home as real estate without the emotional attachment of the memories. You can take the memories with you, but decoupling the emotions from your home will make the sale easier.
Timing
Because market uncertainty, lending options, and even the age of your children are important considerations in selling a home (and purchasing a new one), it’s critical to consider timing as an element of this decision. For example, you may have a child with special needs or a particular attachment to a school that would make it extra difficult to move out of the neighborhood. You may be facing economic conditions that make it difficult to get a reasonable loan or are in-between jobs, which could make it nearly impossible to qualify for the size of mortgage you need. Notice how the particular timing of this situation impacts your decision to sell now, sell later, or keep the marital home.
Option to Rent
Sometimes, selling your marital home and renting is a great option, especially if you are in a situation where you could lose money keeping your home. While real estate is one of the best investments you can make, you generally have to hold onto the property for 7-10 years to get a good return on your investment. While rent can never be recouped, you don’t lose money when you rent either. In the current market, rent prices will continue to go up significantly, at least for the next 18 months. Paying rent each month means less money in your bank account for a downpayment for a house you own. Once again, get input from realtors, lenders, trusted friends, and people working on your divorce team who are experts in their field. Listen to their advice rather than make decisions based on emotion.
Taking the next step in the process of selling or keeping your marital home as part of a larger division of assets isn’t simple. There are a variety of factors to consider and Amy Mahlen of A.M. Financial can support your decision by providing insight into the financial aspects of this decision. If you have additional questions about the Denver real estate market and what to expect from the current market dynamics, contact Shirley Jenkins to learn more.