3 Precautions When Buying a House After Separating
One of the first talks that separating couples have is whether or not either party is moving out of the house. Kids or one’s own finances oftentimes make it clear that one can’t afford to leave. Some people, however, will move out, whether it’s to a family member’s home or to a rental. Sometimes, people plan to buy a house.
While a new house may seem like a good, fresh start, jumping into the real estate market when you’re newly separated has significant risks and is not typically recommended. Here are three things to consider before you sign an agreement of purchase and sale.
No refinancing without a signed separation agreement
A bank or private lender will typically not give you financing until they have a signed separation agreement. This is primarily because the institution loaning you money must see your income flow and what payments are being made as a result of the separation. For example, will you be paying or receiving child support or spousal support? Will your spouse be buying you out of your home? Do you owe your spouse a payment for property division? All of these things impact your ability to buy a home, which is exactly why a lender needs to know them before they can give you financing.
No access to sale proceeds
Some couples will sell their home as a result of their separation. While this does mean there will be sale proceeds coming to each spouse, they are typically not released until there is a signed separation agreement. This is because if there are payments owed from one spouse to another, sale proceeds give a sure pocket of money to make those payments. To protect them, they will not be released until both parties agree on how they will be distributed. A real estate lawyer won’t release these funds until they’ve received something in writing from both parties.
Potential lawsuit for not being able to close a sale
Many separating couples believe there is minimal risk in putting an offer on a new house, especially if the closing date is months down the road. The fact is, however, that finalizing a separation agreement takes time. You need to discuss parenting terms. Financial disclosure like income, assets, and debts, must be disclosed. Property needs to be divided. Support needs to be calculated. A closing date can creep up quickly. If you do not have a signed separation agreement well in advance of a closing date, allowing for transfers to happen and payments to be made, then you will not be able to close your real estate purchase. If the seller cannot extend the closing date, the risk is that they can sue you for damages. The extent of these damages is unpredictable as it all depends on whether or not the seller can sell their home, for how much, how soon after the anticipated closing, and so on.
It’s understandable why people don’t want to stay in the same home after separating. It can be emotional, stressful, and difficult for all living under that one roof. It can be tempting to buy a new home, but it can cause more strain and problems in the immediate future.
It’s important that you speak with your lawyer about your particular risks and options if you are considering buying a new home after separation.