The views expressed in this column are solely those of the author.

 

 

When a separating couple calls their Realtor, they usually want one thing: a home value figure. To a Realtor’s ears, this might sound like a listing. More often than not, it isn’t. One of them wants to keep the home, and your market value opinion is about to be used to price a buyout, not a sale. You have just done an afternoon’s worth of unpaid work for a family lawyer. It hurts, and I’m sure it sounds familiar … right?

The way out is not to stop taking these calls. It is to bring a mortgage broker in on day one, because financing decides what this file really is for you.

 

When the buyout fails, you have a listing

 

Two incomes bought the house. One income has to keep it, and lenders are not sentimental. A buyout means a bigger mortgage, stress-tested at 2 per cent above the contract rate, on a single income and whatever debts the separation agreement assigns.

The arithmetic is quick and unkind. A couple earning $180,000 carried a $700,000 mortgage comfortably. The spouse wanting to stay earns $95,000, and a prime lender will lend roughly 4.25 times income with clean credit. That is about $400,000. The buyout asks them to carry $700,000 plus the departing spouse’s share of the equity.

Child and spousal support can be helpful for qualifying, but only once it is in a signed agreement with a few months of payments behind it. Many lenders also cap how much of it they count, because support is income that can, and will, eventually stop.

 

Don’t assume the client can afford to keep the home

 

A buyout doesn’t only fail because the client can’t qualify. Sometimes it fails because it’s detrimental to your client, and they need someone to be brutally honest. Here’s a real-life example:

A Realtor referred a client buying out her ex-spouse. Her income supported a mortgage of about $500,000, but the buyout needed $800,000. A co-signer closed that gap.

Me: Is your co-signer contributing to the mortgage?

Applicant: No. Just me.

Me: So, you’re going to carry a mortgage $300,000 above your solo affordability?

Applicant: I want to stay in the house, so I guess I have to.

Me: This will sink you within months, if not sooner. You need to work with your Realtor to sell.

Realtor’s move: Contact a mortgage broker to run the numbers in week one, not month three. Buyouts rarely fail loudly. Many die quietly on the arithmetic, after weeks of hoping and a lot of borrowed time from the other parties involved. The agent who spots it early, and guides the couple accordingly, earns the listing.

 

When the buyout works, you have a buyer

 

Sometimes the spouse who stays does qualify. The other spouse leaves with a sizable cheque, and that cheque is a down payment looking for a Realtor.

Here are three things the buyer does not know yet:

1. The cheque is half the equity, not half the value. The existing mortgage balance comes off first, then legal fees and any penalty if the old mortgage must be broken. None of it is cash until the buyout closes. A buyer who hears “the house is worth $1 million” and thinks “I have $500,000” is often working with only half of that.
2. Their name stays on the old mortgage until the new mortgage closes or the lender releases their liability in writing. Most lenders count that entire payment as their debt, even if the ex is paying it.
3. Their borrowing power is a fraction of what it will be once they are off, so nothing should go firm before that release. And support payments cut both ways. If paying, it is a debt. If receiving, it counts only with that signed agreement.

One bright spot: After a marriage or common-law relationship ends, they can usually use the Home Buyers’ Plan again.

Realtor’s move: Stay in the loop while the broker sorts out the departing spouse’s financing. With the client’s permission, ask the broker where the file stands. Explain the process before anyone else does, and you will likely be the call they make when the cheque clears. A separation comes with at least one buyer in it, and too many agents lose them by pushing too soon.

 

How soon, and how serious?

 

You can read the situation before any pre-approval letter arrives, and asking each spouse four questions gets you most of the way.

Income: Whose income will be on the new mortgage, and how much is it?

Credit: Ask them to describe in their own words what their financial reality has been over the last 12 months. Separations are hard on payment histories, and missed payments on a joint mortgage land on both files.

Down payment: How much is it, and when will it land as a bank draft?

Debt obligations: What are the monthly minimum payments, and is any support being paid?

Realtor’s move: Treat the broker as your filter. If the couple will not spend 20 minutes with a broker, they are not selling, buying or refinancing this season, and you can stop doing homework for their lawyer. People who are months away from a signed separation agreement will take your free valuation because it selfishly helps them, but not you.

The same filter works on every stranger who wants to tour million-dollar homes without a pre-approval … but that’s a topic for another time.