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Home Equity
Mortgage Strategy
Real Estate Finance
Second Mortgage
Homeowner Guide
Divorce Buyout
How to Keep the House in a Divorce Settlement
Dom Bounasissi
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Major life transitions like divorce or separation often require quick access to significant cash while emotions run high. Understanding your home equity options can provide clarity, control, and a path forward during uncertain times. Whether you're buying out an ex-spouse, dividing assets, or establishing independent housing, your home equity can be a strategic tool. This guide will walk you through everything you need to know about how to keep the house in a divorce settlement. ## Understanding Your Options ## What You Need to Qualify Lenders evaluate several factors when approving home equity financing: **Credit score**: Most programs require 680 minimum, with better rates reserved for 720+. Some lenders go as low as 640, but expect higher rates and stricter income requirements. A 760 score might get you 7.5%, while a 680 might see 9.5% for the same loan. **Debt-to-income ratio (DTI)**: Add up all monthly debt payments (first mortgage, car loans, credit cards, student loans, the new second mortgage payment) and divide by gross monthly income. Lenders typically cap at 43-50%, with some stretching to 55% for borrowers with strong credit and reserves. Example: If you earn $8,000/month gross and have $2,400 in existing debt ($1,800 first mortgage + $400 car + $200 cards), you're at 30% DTI. A lender allowing 45% DTI means you can add up to $1,200/month in new debt ($8,000 × 0.45 - $2,400 = $1,200). **Combined loan-to-value (CLTV)**: This measures total mortgage debt against home value. Formula: (First Mortgage Balance + Second Mortgage Amount) ÷ Home Value. Most lenders cap at 80-90% CLTV. Example: Home worth $400,000, first mortgage balance $260,000. At 85% CLTV, you can borrow up to $80,000 ($400,000 × 0.85 - $260,000). At 90% CLTV, you could access $100,000. **Income verification**: W-2 employees provide recent pay stubs and W-2s. Self-employed borrowers provide 1-2 years of tax returns, year-to-date profit & loss statements, and sometimes bank statements showing consistent deposits. **Property appraisal**: The lender orders an appraisal to confirm your home's current value. If your house appraises for $375,000 instead of your estimated $400,000, your available equity drops proportionally. ## Making the Right Choice Your existing low mortgage rate is a valuable asset. On a $300,000 mortgage, the difference between 3.5% and 7.5% is $850/month - that's $10,200 per year. Second mortgages let you access equity without sacrificing that value. Yes, you'll pay more on the second lien (7-9% range), but your blended effective rate across both mortgages still beats refinancing your entire balance at today's higher rates. Do the math: calculate your total monthly payment with a second mortgage versus a cash-out refinance, then multiply by 12 months and by 5 years. The second mortgage typically saves tens of thousands. ## Your Next Steps Don't rush into home equity financing without understanding your full picture: 1. **Calculate your available equity**: Use the formula (Home Value × CLTV Limit) - First Mortgage Balance. Most lenders cap at 80-90% CLTV. 2. **Evaluate your DTI**: Add up all monthly debt payments including the new loan payment, divide by gross monthly income. Aim to stay under 43-45% for comfortable budgeting. 3. **Get multiple quotes**: Rates and terms vary significantly between lenders. A 0.50% rate difference on $50,000 over 15 years costs/saves $3,000+. 4. **Understand the total cost**: Calculate total interest paid over the loan term, not just monthly payment. That helps you evaluate if the expense justifies the long-term debt. 5. **Have a repayment plan**: Especially for variable-rate HELOCs, know how you'll pay it down within 5-7 years rather than letting it linger at minimum payments. The right home equity strategy depends on your specific goals, risk tolerance, and financial situation. Take time to understand your options, run the numbers honestly, and choose the path that serves your long-term financial health - not just your immediate cash needs. --- *This information is for educational purposes only and does not constitute financial or legal advice. Loan terms, rates, and requirements vary significantly by lender, borrower qualification, and geographic location. Always consult with a licensed mortgage professional to discuss your specific situation and obtain personalized guidance. Interest rates, program guidelines, and market conditions are subject to change without notice.*