If you’re thinking about selling your house, you’re likely thinking about all the money you will make from the sale. However, you don’t get to keep all the cash when you sell your most valuable asset — some of it goes toward a variety of expenses, including taxes and closing costs.
How much does it cost to sell a house? The answer depends on the home’s sale price, where you’re located and what you manage to negotiate with the buyer. The costs can include real estate agent and attorney fees, title-related fees and all the other little administrative expenses that go into sealing a deal. Depending on your state, there may be transfer taxes; if you’re paying off a mortgage, your lender will probably have a few charges for you, too. It’s good to be prepared, so that you don’t get an unpleasant surprise at the closing table.
Costs of selling a home
Here’s a rundown of typical costs to expect as you do the math on what you’ll walk away with when you hand over the keys.
Real estate commissions
The real estate agents’ commissions usually add up to the biggest fee a seller pays — historically somewhere between 5 and 6 percent of the home’s sale price. So, if you sell your house for $450,000, say, you could end up paying $27,000 in commissions. In most cases, you as the seller bear the cost for both your own agent and your buyer’s. However, you may be able to negotiate a lower commission, especially if the sale price is relatively high.
Seller’s closing costs
In a real estate transaction, many closing costs are the buyer’s responsibility. But there are closing costs for sellers as well. Some of the most common include title insurance, recording and settlement fees, and prorated property taxes and HOA fees up until closing day. You also pay other minimal fees for things like escrow and wire transfers. Additionally, if you have hired a real estate attorney, the legal fees will be due at closing.
Don’t be surprised if you are asked to foot the bill for some of the buyer’s costs, too. While that had been somewhat rare in the seller’s markets of the last few years, more than one-third of sellers offered concessions in late 2023, according to recent research from Redfin — a signal that the market is shifting and buyers are gaining more traction.
Mortgage payoff
Your existing mortgage doesn’t magically disappear when you transfer ownership of the property: You have to pay off any remaining balance before that transfer can occur. You’ll probably have to add prorated accrued interest to the total balance, and there might be an additional fee if your mortgage carries a prepayment penalty (check your loan documents or contact your lender to find out).
Moving costs
When you sell your place, you’ll have to move all your stuff to your next place. Paying for that will set you back between $833 and $2,547, with the average moving price being $1,698, according to HomeAdvisor. However, that price tag can be a lot higher if you’re moving long-distance.
Taxes
There are quite a few tax implications that sellers need to consider prior to listing their homes. Here are three big factors that can eat into your profit potential:
- Property taxes: Annual property taxes are usually paid in advance. You may need to pay the prorated share of property tax up to the closing date, with the money placed in escrow. However, if you already paid them past your closing date, you might be in for a partial rebate.
- Transfer taxes: Many states levy a real estate transfer tax, which is a tax on transferring the property’s ownership. Transfer tax amounts vary based on where you live, but they’re typically a percentage of the sale price (usually less than 1 percent).
- Capital gains taxes: If you stand to make a sizable profit on your home sale, you may have to pay capital gains tax to the government. It depends on the dollar amount of the profit, whether you file on your own or jointly with your spouse, how long you lived there and whether it was your primary residence. If you’ve owned the home for a very long time, give some extra thought to this piece of the puzzle. For example, if you bought the home 35 years ago for $200,000 and it’s now worth $1.5 million (not out of the question in certain parts of the country), your sale could trigger a huge tax hit.
Optional fees when selling a home
While some expenses are mandatory, like taxes, others are optional. Here are some things you might choose to do to improve your home’s appeal, all of which will incur extra expense.
Home repairs and improvements
Before you sell, you might be tempted to undertake a project that seems likely to increase the value in a buyer’s eyes. While some repairs might be worth making, it’s equally important to know what not to fix when you’re selling your house. Consult your real estate agent about whether the cost will be worth it.
“One of the most common mistakes I see from sellers is spending money on the wrong improvements before getting a Realtor involved,” says Charly Marggraf, an agent with Compass in Minnesota. “Often, a seller will hold certain improvements in a higher regard than the general buying public. I appreciate that they want to get their homes in great condition before they sell, but if they are making improvements in order to sell, they definitely need to have a conversation with a professional before they spend their money.”
Home inspection
In addition to talking with your agent, it can be wise to talk with a professional home inspector. A pre-listing inspection will likely cost around $350, according to HomeAdvisor, and it will fill you in on any major problems before a potential buyer sees them. For example, if a home inspector finds a leak in your bathroom, you can proactively address the problem and remove any possibility of a buyer asking you to lower the price to repair it.
Curb appeal and staging
In real estate, a lot of buyers judge a book by its cover. That means that making the house look appealing from the outside is essential to get those buyers to come on in. Consider affordable ways to boost your curb appeal, such as cleaning the windows and sprucing up the front steps and landscaping.
You might also consider staging the interior of your home to make it more welcoming. The cost to stage a home ranges widely, depending on the size of the home, whether you’re renting furniture and more, but an appealingly staged home can make a meaningful difference to buyers. According to the National Association of Realtors, 20 percent of buyers’ agents say that staging increased offer amounts by somewhere between 1 and 5 percent.
Cost to sell a house: A rundown
Every property is different, so you’ll need to carefully consider what will impact the math on selling your house. To give you an idea of how this breaks down, let’s consider a property purchased for $350,000 four years ago. You made a down payment of 10 percent, $35,000, so your initial loan was for $315,000. Since then, you’ve managed to pay down the balance to $290,000. In the meantime, thanks to a surging real estate market, the property will sell for $450,000. But how much will really go into your bank account?
Real estate commissions | $27,000 (6 percent of purchase price) |
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Property taxes | Depends on location |
Transfer taxes | Depends on location |
Title insurance | $4,500 (Typically a percentage of the purchase price; in this case, we’ll use 1 percent) |
Attorney fees | $1,000 (varies by workload and location) |
Escrow fee | $2,250 (0.5 percent fee representing seller’s portion) |
Utilities | $328.03 (combined average for electricity, natural gas, water and sewer, according to move.org, but varies widely) |
Moving costs | $1,698 (average cost for a local move, according to HomeAdvisor) |
Mortgage payoff | $290,000 |
Total: | $326,776.03 |
Seller concessions | $6,750 (1.5 percent of purchase price) |
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Pre-listing home inspection | $350 |
Home warranty | $1,049 (varies widely) |
Home improvements | $5,000 (varies widely) |
Home staging | $1,796 (varies widely) |
Repairs | $3,500 (varies widely) |
Total: | $18,445 |
In this scenario, your total costs might range from around $326,776 to $345,221. That leaves you with net proceeds from that $450,000 sale ranging from $104,779 to $123,224. Either way, it’s a relatively nice payday that you can use to make a down payment on your next place.
Reducing the cost of selling a house
If you want to pay less to sell your house, you have a few options:
- Sell it as-is: When you sell your house as-is, you’re telling prospective buyers that you aren’t going to budge on repairs and concessions. This means you won’t have to pay any money to fix the cracks in the floorboards or repair the dented garage door — however, as-is listings can turn off some buyers.
- Sell it yourself: The “for sale by owner” route cuts the commission fee for a listing agent, so you’ll save up to 3 percent. You’ll still need to pay the buyer’s agent’s fee, though, and be ready to do a lot of marketing and negotiation work.
- Sell it with a cheaper service: There are low-commission and flat-fee agents whose services are more affordable than a traditional agent. Be mindful of the adage that “you get what you pay for,” though: You’ll want to do your research to determine whether your listing will still be a priority.
- Sell to an iBuyer or cash homebuyer: These companies move fast, letting you speed to the closing table, and they typically buy in as-is condition, meaning you won’t have to spend on repairs or staging. But, while you’ll get your money quickly, you aren’t likely to get as much as you would with a traditional market sale.
Next steps
Now that you have an idea of how much it costs to sell a house, it’s time to find a local agent who knows your market well and can help guide you to a successful — and lucrative — sale. Set up interviews with several candidates to get a sense of their marketing and sales strategy. Remember: You’re paying them out of your proceeds, so you’re the boss. Ask plenty of questions to find the right person for the job.
FAQs
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Add up the costs you expect to pay to get the deal done, including real estate commission fees, home preparation fees, taxes and all the other items you’ll need to pay for at closing. Subtract that total from your list price to get a realistic ballpark estimate of how much money you’ll make from the deal if you sell for full price.
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It varies widely, but in general, expect to pay around 10 percent of the purchase price to cover all your financial responsibilities. That includes what will likely be the biggest line item: real estate commissions, which typically add up to 5 or 6 percent of the purchase price.
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Transfer taxes tend to be one of the biggest variables for sellers. Some states don’t charge them at all, whereas in some states they can be very steep. In New York, for example, the transfer tax rate is $2 for every $500 in value — sell a home for $450,000 and you’re looking at $1,800 in transfer taxes. In California, where the rate is just $1.10 for every $1,000 in value, the bill for a $450,000 sale would be a mere $495.
Key takeaways
- Financing an overseas home purchase can be difficult if you aren’t a citizen or resident of that country.
- While some countries allow you to take out a local mortgage, you might find it easier to use a home equity line of credit (HELOC) from a U.S.-based lender.
- On the plus side, using a HELOC to buy international property lets you keep your property in the U.S. and provides quick access to funds.
- However, your home serves as collateral for the HELOC, putting you at risk of foreclosure if you can’t repay.
When Las Vegas-based real estate investor Alicia Cramer decided to buy property overseas, she took a novel approach. Using a home equity line of credit (HELOC) based on her stateside properties, she was able to invest abroad without spending months trying to get a local mortgage or unload her domestic real estate. “The HELOC was the best way to go if I didn’t want to sell everything,” she says. “Selling everything takes time anyway; a HELOC was faster.”
Cramer is just one of many property-owners in the U.S. looking beyond domestic borders to make their next investment. Thanks to their lower cost of living and affordable real estate, places like Mexico, Costa Rica, Panama and Indonesia are some of the most popular countries luring Americans to invest, according to a trend report by Coldwell Banker Global Luxury.
If you’re interested in buying a property overseas, a HELOC can be a good option to help finance your expenses. But before you go this route, it’s a good idea to consider the pros and cons as well as alternative options.
Financing foreign real estate
Local mortgages can be difficult to secure if you’re trying to purchase a property abroad – especially if you’re not a citizen or permanent resident of that country.
Even if the country has a mortgage industry, it can be tough to find a loan with terms as favorable as you’d get in the U.S. If you do secure one, it might come with a higher interest rate and a significant down payment requirement (often 30 percent – or more – of the property’s value). You’ll also want to consider the exchange rate between the country’s currency and the U.S. dollar. If the local currency strengthens against the dollar, your mortgage costs could go up. In addition, you may be forced to invest in a life insurance policy for the mortgage amount and name the bank as a beneficiary.
In Costa Rica, for example, obtaining a mortgage as a foreign citizen can be extremely challenging, local realty firms note. And the costs can add up quickly. Down payments can range from 30 to 50 percent, and interest rates are often between 8.5 and 10 percent for a 20-year loan, according to RE/MAX Ocean Surf & Sun in Tamarindo, Costa Rica.
Add in extensive paperwork, high fees and lengthy processing timelines, and it’s no wonder that Americans decide to finance a foreign property with a homegrown HELOC.
Using a HELOC to finance property overseas: Is it a good idea?
Compared to other financing options, using a HELOC to buy property abroad has its advantages. With a HELOC, you don’t have to sell any properties in the States to fund your overseas purchases. Plus, if you have a significant level of equity in your home, you can take out a sizable sum for your international investments – and get the money quicker than you would with many other types of funding.
But is it a good idea?
“Utilizing a HELOC for an international real estate investment can be a viable strategy, but it requires careful consideration,” says Mark Damsgaard, Founder & Head of Client Advisory at Global Residence Index, a firm that helps clients invest in international real estate. “The decision hinges on various factors, such as the current real estate market conditions, the investor’s risk appetite, and the specific terms of the HELOC.”
HELOCs typically have variable interest rates, so if rates go up, so will your monthly payments. “While it provides convenient access to funds based on home equity, I often advise my investor clients to be mindful of potential currency risks and interest rate fluctuations,” says Damsgaard.
While these concerns characterize any foreign investment, there’s an additional wrinkle with HELOCs: Your home serves as collateral for the line of credit. So if you can’t repay what you’ve borrowed, you could face foreclosure.
What are the pros of using a HELOC to purchase foreign property?
You keep your home in the U.S.
If you don’t want to sell your house to buy another house, a HELOC might be a good option.
There are many reasons why homeowners would want to hang on to their home, says Shreesh Deshpande, finance and real estate chair at the University of San Diego. In this instance, a HELOC could be a good alternative to selling.
“A lot of times the scenario is that somebody is planning to retire six years from now, but they still need to live in their existing property, so they keep their house while buying a house in a foreign country,” says Deshpande. “The other thing is that people want to have one foot in the U.S. and one foot abroad. A lot of the rationale has to do with staying close to their family. They have children and grandchildren in the U.S. so they don’t want to completely move.”
Better terms and lower down payments
With HELOCs, your credit line is determined based on the equity in your home. Banks normally lend around 80 to 85 percent of the home’s value. So, if you own your home outright and it’s appraised at $500,000, the bank might extend financing up to about $400,000.
Compare that to unsecured personal loans, most of which have a maximum of $50,000. There are lenders, such as SoFi and LightStream, who will do more — as much as $100,000, in some cases.
HELOCs not only let you borrow more, they make you pay less. As of late January 2024, average HELOC rates range from 8.74 to 10.48 percent.
Personal loan rates vary quite a bit based on your credit score, but the average rate is currently 11.56 percent, and they can exceed 35 percent.
Plus, personal loans often have shorter terms, typically, one to seven years. HELOC borrowers can choose among various term limits, from 10 to 25-years. The loan is split into two periods: the draw period and the repayment period.
You become a cash buyer
A HELOC offers two things: capital and convenience. “The advantage is that the HELOC provides access to capital for the person who has a home in which he or she has significant home equity. And then they get this HELOC money to potentially invest in real estate,” says Deshpande.
Using the money from the HELOC essentially turns you into a cash buyer (as far as the seller is concerned). Being prepared to pay cash may get you a discount on the home’s sale price and or give you an advantage during negotiations.
It can also help speed up the transaction — another plus, as far as all parties are concerned. Borrowers can get a HELOC in as little as two weeks, depending on your lender and how quickly you can submit your paperwork.
More familiarity with your financing
As you may have experienced when buying a home in the U.S., applying for and taking out a mortgage can get complicated quickly. Now, imagine going through that process in a foreign country where you aren’t familiar with the real estate market, banking system, and, possibly, the language.
With a HELOC, you can feel more confident with your overseas investment, with a full understanding of your financing – including how much you have, how (and when) to repay it and where to find help if you have questions.
Cons of using a HELOC to purchase foreign property
Your home is used as collateral
HELOCs put your home on the line, literally. If you’re unable to make payments, the bank can take possession of the property.
“The bottom line is that if someone takes out a HELOC to buy an investment property abroad or wherever else, the person has increased their leverage or the amount of debt they have. So it’s definitely not reducing risk, it’s increasing risk,” says Deshpande.
Rates fluctuate
Traditionally, the interest on a HELOC accrues at a fluctuating, vs. a fixed, rate. As a result, your “monthly payments may fluctuate due to variable interest rates, akin to credit cards,” says Danny Margagliano, a Realtor with Team Margagliano in Destin, Florida. “This requires careful financial planning to mitigate potential risks.”
However, there are hybrid options that allow borrowers to pay a fixed rate on a portion of the credit line and an adjustable-rate on the remainder. Chase, for example, has a fixed-rate HELOC option which allows borrowers to switch from adjustable rates to a fixed rate during the draw period on loans of more than $1,000.
Unable to deduct the interest paid
One advantage of HELOCs is the tax break for homeowners. If using the money to buy, build or substantially improve their home, a taxpayer can deduct the paid interest on their returns each year.
But the improvements have to be on the collateralized home — the one backing the line of credit. If you use a HELOC to buy another property, the interest would not be tax-deductible.
Buying power may be limited
Of course, the amount of equity you have can dictate your buying power. Remember, most lenders are only going to let you borrow up to 80 percent of it, for starters. If you haven’t built up much equity in your home yet, it may be tricky to find a home that you can fully finance with a HELOC. In that case, you’ll need to explore other funding options.
How to use a home equity loan or HELOC to purchase foreign property
Before applying for a home equity loan or HELOC, you’ll want to make sure that you fulfill the eligibility requirements. Generally speaking, you’ll need a minimum of 20 percent equity in your home. Beyond that, most lenders expect a credit score in the mid-600s or higher, as well as steady income and a debt-to-income (DTI) ratio of 43 percent or less.
If you meet these criteria, you should be able to use a HELOC or a home equity loan (a HELOC’s fixed-rate, lump sum cousin) to buy property abroad. Generally speaking, the process will look like this:
- Shop around to compare lenders and find the most favorable loan terms and rates.
- Apply for the home equity loan or HELOC.
- Schedule an appraisal to determine the value of your home.
- Get approval from your lender.
- Close on the loan and receive the funds in a lump sum (with a home equity loan) or withdraw money as needed (with a HELOC).
Alternatives to using a HELOC or home equity loan to purchase property overseas
Overseas mortgage through your local lender
Although many lenders won’t fund a home purchase outside your home country, some will. For example, HSBC offers international banking services in select countries, and if you’re currently an account-holder, they may be able to help you secure a mortgage for international property.
If you go this route, hiring a local lawyer in the country where you’re buying might also be helpful. Before you agree to work with someone, ask about their experience with managing loans for international property and confirm that they’re permitted to practice in both the U. S. and their own land.
Retirement savings or self-directed IRA
You could tap into your retirement savings to purchase property overseas, but depending on how you do it, you may face tax consequences and other financial implications.
However, if you have a self-directed IRA, it can be a great resource to buy a house abroad and use it as a rental or investment property. In contrast to traditional IRAs, with this type of account, you’re free to invest in all kinds of assets, including domestic and international real estate. Be aware, though, that since the property is technically an investment, you can’t live in it until you reach the age when you start to receive distributions.
Developer financing or local mortgage
If you wish to buy a lot, home site or property under construction, developer financing may be an option. Fortunately, it usually comes with minimal paperwork and doesn’t require you to purchase life insurance. Depending on the country and developer, you may also lock in zero interest on this sort of loan.
Every type of developer financing is different, so read the fine print before you sign on the dotted line. Also, be sure you can repay the money you borrow with the repayment terms outlined in your contract.
You might also have the ability to take out a local mortgage to buy your new home. But as we’ve mentioned, this option often has major obstacles, depending on the country’s laws and policies. In some places, getting a local mortgage might not be possible at all.
Personal loans
Personal loans are another potential alternative to using HELOCs or home equity loans for overseas property. However, you can usually only borrow up to $50,000 (or, in some cases, $100,000) with this type of loan – and that might not be enough to buy a house abroad, even in a low-cost-of-living area.
Something else to keep in mind: You can’t use an unsecured personal loan for a down payment on a house, if you’re financing the purchase. If that’s your plan, you’d have to get a secured personal loan – and put down some type of collateral (such as a car) to get approved.
However, you could use an unsecured personal loan to augment your own funds to buy a home, foregoing financing entirely (see below).
Pay cash
If you can afford it, cash can be ideal if you’d like to buy a property overseas. It’s simple, it’s direct, and you can leverage it to negotiate the best possible price. It tends to expedite the closing process significantly, too.
Note that paying cash, however, makes the most sense if you’re buying a completed property, either pre-owned or new. You won’t want to risk your money on a project that may never materialize — especially if it’s located far away.
If you’re raising the cash by selling financial assets, like stocks or bonds, crunch some numbers first. Assess how much your investments are currently returning compared with the interest you’d pay on a HELOC. It’s also important to understand the costs involved with selling your investments. You might be on the hook for transaction fees or capital gains, which could cut into your earnings.
The bottom line on financing a property overseas
While all real estate transactions are complex, those that involve a property overseas come with an extra set of challenges. If you’re in the market for a house abroad, explore all your payment and financing options — and bear in mind that changes in currency rates can impact your overall costs significantly, both in purchasing and in maintaining your property.
Using a HELOC can be a strategic financing move. But reach out to a real estate attorney or experienced real estate professional — one specializing in overseas transactions — who can help you with the paperwork and guide you through the process. By doing so, you can protect your rights and avoid unnecessary roadblocks.
Key takeaways
- Let your mortgage lender or servicer know if you’re getting a divorce.
- Your divorce mortgage options include refinancing your mortgage, selling your home or paying your ex-partner for their share of equity.
- To help you decide, calculate the amount of home equity you have, as well as any tax implications and impact to your credit.
One of the biggest decisions divorcing couples face is who gets the house in a divorce. If you’re in this situation, your options might depend on how the home is financed and titled, among other factors. Another question people might ask during a divorce is, “What are my rights if my name is not on the mortgage?” Here’s everything you need to know about how divorce impacts your mortgage.
Mortgage options when dealing with divorce
1. Refinance your mortgage
Some divorcing couples with a joint mortgage decide to refinance to a new mortgage in only one of the spouse’s names. This releases a spouse from responsibility for that mortgage when their name is removed from the loan.
However, unless that partner’s name is also removed from the title, they can still benefit from the sale and equity in the home. It’s important to not only refinance but also update the house title to reflect one owner. When only one spouse is on the mortgage but both are on the title, you’ll need a quitclaim deed to remove one spouse’s name from the title.
Keep in mind: The spouse applying for the refinance can use only their own income and credit score to qualify, warns financial advisor Jeremy Runnels, CFP, of West Coast Financial in Santa Barbara, California. Depending on current rates, you could get a much higher rate when you refinance, as well.
“The lender is going to look at the individual and make sure they’re OK having them as the sole guarantor,” says Runnels. “The issue is can you afford it, and that goes for either spouse.”
If a partner will receive alimony or spousal support, they can use that income to qualify for a refinance, as long as the divorce settlement stipulates that they will receive alimony for at least three years, says Runnels.
If the couple has equity in the home, the spouse keeping the house could alternatively apply for a cash-out refinance to pay their ex-partner their share (more on that below).
Some refinancing options you have when dealing with a divorce include:
- Conventional refinance
- Streamline refinance (for FHA, VA and USDA loans)
- Cash-out refinance
2. Sell your home
The divorce agreement might call for the sale of the home and the splitting of profits. If you go this route — and many couples do — consider the costs. These might include the Realtor’s commission, the costs of sprucing up the property to make it more attractive to buyers, real property transfer taxes and capital gains taxes.
3. Pay your ex for their share of equity
Let’s say your home is worth $300,000, and you owe $200,000 on the joint mortgage. In this case, you’d have $100,000 in equity, so you’d need $50,000 to buy out the other spouse’s share (assuming a 50/50 split).
To get the cash, you could refinance into a $250,000 loan in your name only, and use the $50,000 cash payout to settle up with your ex.
You’ll need to qualify for the refinance, however.
“Their income needs to be high enough to handle the new mortgage on their own, and the home must have the equity in it to take the cash out,” says Michael Becker, loan originator and sales manager at the Baltimore retail branch of Sierra Pacific Mortgage. “FHA and conventional cash-out refinances are capped at 80 percent loan-to-value, while you can go to 100 percent on a VA loan.”
If you want to keep the house and don’t have enough equity to do a cash-out refinance or the money to pay your ex their share, a home equity line of credit (HELOC) or home equity loan could be the solution.
“You could look at doing either a home equity loan or a home equity line of credit, as some lenders will allow you to go to 95 to 100 percent of the value of your home,” says Becker.
Important financial considerations when getting divorced
Deciding what to do with the marital home can get messy. Before diving into any particular course of action, consider the long-term impacts on your finances:
Evaluating your home equity
Whether you plan to refinance the joint mortgage or sell the home, you’ll need a professional appraisal report to determine it’s worth and any equity you might walk away with.
Sometimes, however, a couple doesn’t agree on the appraised value. This can cripple efforts to move forward and can mean spending more time and money on attorneys and appraisers. In this situation, it’s best for the parties to strive to agree on which appraiser to work with and to accept the outcome of the valuation, whatever it might be.
If you are selling the home, you might decide to split the equity (less closing costs and any repairs and improvements) or use it to pay off other debts you accrued together. Likewise, some couples include a provision in their separation agreement that they’ll accept the first offer on a home, provided it’s within a certain percentage of the list price.
Tax implications
Whether you sell the home as part of the divorce agreement or buy out your spouse’s share, capital gains taxes could come into play. This is a tax on the sale of capital assets, such as a home, when the profit exceeds a certain amount.
If you sell the home, you and your spouse might be able to deduct up to $250,000 of gain from your federal taxable income, but it applies only to the primary residence you’ve lived in for at least two of the last five years prior to the sale.
There are also tax considerations regarding alimony payments. The spouse who earns a higher income and pays alimony can’t deduct those payments from their taxable income, but the spouse receiving alimony does not have to declare it as income. (This applies to divorces finalized after Dec. 31, 2018.)
The higher-earning spouse could make a case for paying less alimony, which can lower the receiving spouse’s income to qualify for a new loan, says Runnels.
Conversely, alimony payments might hurt the payer’s income and chances for a mortgage.
“Can a spouse afford the house and all the alimony and child support payments?” says Runnels. “On the flip side, can the alimony (recipient) afford to keep the house, given they are responsible for all the expenses?”
Protecting your credit
Divorce is an emotional, often volatile event — but the worst thing divorcing couples can do is take financial revenge.
“Many times, out of bitterness, I’ve seen one or both spouses ruin the credit of the other spouse,” says Becker. “They decide that it’s the other person’s problem and refuse to pay bills that may be joint accounts. This can damage your credit greatly and keep you from being able to qualify for any mortgage for a long time.”
The bottom line: Keep paying all of your bills through the divorce process to protect your credit.
“Close your joint accounts and get your own accounts set up,” says Runnels. “If you’re arguing with your spouse over who is going to pay a bill, and you get a ding on your credit, it’s going to be harder to get a loan.”
FAQ about divorce and mortgages
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Even if you plan to hold onto the house and pay the marital mortgage yourself, the names on the loan are ultimately the ones responsible for paying it — including your ex.
If for some reason you can’t pay the mortgage, your ex could refuse to pay it, damaging both of your credit scores and making it harder for you both to qualify for another loan. It’ll also be much more challenging to sell, gift or bequeath the home because your ex could claim some ownership of the property. In general, it’s best to take your ex’s name off the mortgage and move forward with your own, new loan.
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It’s important to inform your mortgage lender or servicer of your divorce. This could help you avoid delinquency issues if your ex decides to stop paying the loan before the divorce agreement is finalized.