Recently, we discussed the importance of divorce mortgage planning, refinance options, and the importance of the loan-to-value ratio. In today’s post, I will explain what an equity buy out is, how it can help maximize available equity for a divorcing homeowner, and outline the steps you need to take to navigate the process successfully.
Now, before we get started, don’t forget to take advantage and download our Divorce Lending Blueprint for Success with the link below. This free guide is designed to walk you through the divorce refinance process step-by-step and is a great tool for both homeowners and attorneys alike.
Although the term Equity Buy Out may sound like one party is being qualified to purchase the equity interest of another, it actually involves the refinance of an existing mortgage to pay out the ex-spouse’s equity interest in the property. 
“Equity” refers to the difference between the home’s current market value and any outstanding mortgage balance.
For example, if the appraised value of the home is $600,000 and there is a $400,000 mortgage balance, the equity in the home is $200,000. If the couple agrees to divide the equity equally, each spouse would receive $100,000. The refinancing process would then be used to access the necessary funds to complete the buyout of the departing spouse’s interest in the property.
As previously discussed, properly structuring the loan is critical to be able to maximize the available equity to access these funds while at the same time keeping affordability for the divorcing homeowner.
When considering refinancing, homeowners typically weigh the option of a cash-out refinance to access home equity for a marital settlement agreement. However, with a well-structured marital settlement agreement, an equity buyout can be utilized to achieve a rate-and-term refinance, offering a more effective solution.
An equity buyout allows a divorcing homeowner to access equity to satisfy their obligations in the divorce decree, and with a rate-and-term refinance, homeowners can access up to 95% of the home’s value under a conventional loan. This approach provides greater flexibility, more access to equity, and better interest rates than a cash-out refinance.
In contrast, a cash-out refinance on conventional loans is typically capped at 80% of the home’s value and comes with higher interest rate adjustments.
By leveraging an equity buyout as part of a rate-and-term refinance, you can secure more favorable terms, ensuring that your financial goals after divorce are met.
A divorce refinance with an equity buyout can be an excellent option if you want to keep the family home and ensure an equitable division of assets. In Part 2 of this series we will breakdown the requirements for equity buyout. However, it’s essential to carefully assess your financial situation and consult with a Certified Divorce Lending Professional (CDLP®) to guide you through the process.
As a CDLP, I understand the ins and outs of divorce refinancing and equity buyouts and our dedicated team of divorce lending professionals will walk you through the qualifying process step-by-step. Just call, text, or email to discuss your scenario and let our Divorce Lending Practice Group go to work for you.
Call/Text: 813-935-8330
800-806-9836 Ext. 280
SeanS@MPLX.org
P.S. – You can download our “Divorce Lending Blueprint for Success” by CLICKING HERE.
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