When divorce turns a person’s life upside down, one of the biggest challenges is housing – specifically, finding a new place to live, and deciding whether to buy and how much to spend. During that tumultuous time, real estate professionals can play a key role in guiding clients to sound decisions.
1. Determine whether the buyer is ready
After a divorce, a homebuyer may need to adjust to a new standard of living – likely on a tighter budget than he or she is accustomed. The buyer may have fewer assets and less net worth because of the divorce, making the financial picture less favorable – particularly when seeking credit.
Adjusting to a new standard of living may be difficult for the divorced buyer. He or she may be in denial about changes to his or her financial situation in the midst of mourning the loss of the relationship, and might insist that he or she is able to purchase a larger, more expensive home than he or she can afford. This situation must be handled delicately to avoid offending the buyer while preventing him or her from a bad financial predicament.
Moreover, he or she may not be emotionally ready to make such a large purchase – particularly if the divorce was especially acrimonious.
After a divorce, depending on tax and other concerns, such as 1031 like-kind exchanges, a person may decide to take some time becoming comfortable with his or her new financial situation, rather than jumping into a home purchase.
2. Understand existing obligations
A buyer should have a comprehensive understanding of his or her outstanding obligations before getting too deep in the purchasing process. The sophisticated real estate professional will advise a buyer to carefully review divorce documents and fully grasp his or her financial picture to ensure the buyer is in a financially sound place.
Before considering a purchase, a person should determine whether he or she is still on the marital residence mortgage or other properties, and remove himself or herself from liabilities that may affect the ability to obtain credit.
As part of the divorce decree, a former spouse may be obligated to handle certain financial obligations that continue to appear on the buyer’s credit report. A buyer should carefully review his or her credit report for any inaccuracies or mistakes.
3. Understand the buyer’s credit history
Speaking of credit reports, sometimes a non-wage earning spouse will not be able to qualify for a mortgage because he or she lacks the income and credit history needed to qualify. This is another important reason to review a credit report – to see the credit score, determine where it may be insufficient and devise steps to improve it.
For example, a non-wage earner may need to establish some credit history by obtaining and timely paying on some credit cards or demonstrate that he or she has made the housing payments for a period of time. On the other hand, a spouse may have too many open accounts on his or her credit report due to accounts opened by his or her spouse, such that he or she will want to make sure those accounts are removed from his or her report before applying for credit.
4. Maintain the right distance
After determining whether a home purchase is financially prudent, choosing a location can also be a complicated decision. If children are involved, a buyer will want to consider the distance to the children’s other home, as well as school. Being nearby will make trips to the other parent’s house easier when a child forgets a piece of his or her school uniform or a book for a homework assignment.
But how close is too close? Proximity to the former spouse may not always be ideal. Purchasing a home in a former spouse’s neighborhood could mean unwanted run-ins in the grocery store, the post office or pharmacy. This can be particularly challenging if the former spouse is dating someone else. Mentioning these awkward possible scenarios may help the buyer consider what’s best for his or her situation before making a decision.
Real estate, like law, is a client service industry. A savvy real estate professional will explain these issues to the buyer so that he or she can make an informed decision.
It is important to ensure the client’s interests are served and that he or she has the necessary information and tools. Although that may mean that it takes more effort to complete a transaction or that the buyer purchases a less expensive residence, it also means that the client will likely be grateful for the guidance and advice. A satisfied client is a great referral source.