Short answer
An equity buyout is when one spouse pays the other for their share of the home's equity in order to keep the property. What someone is entitled to legally and how that amount can actually be financed are separate questions.
The arithmetic, simply
Home value, minus mortgage balance, minus other relevant property obligations and transaction considerations, equals estimated equity. The share owed to the departing spouse is a legal determination made with your attorney.
Financing that share is a lending determination: it depends on the new loan amount, the property value, loan-to-value limits, your income and your credit.
What the analysis includes
A complete buyout review typically touches all of these:
- Property valuation
- Existing mortgages
- HELOCs
- Liens
- Ownership
- Settlement terms
- Buyout amount
- Loan-to-value limitations
- Cash available
- New mortgage payment
- Long-term affordability
The common failure point
An agreement sets a buyout figure that requires a loan larger than the property or the borrower supports. The number was reasonable legally and impossible financially. A short feasibility check before signing avoids it.
Frequently asked
Can a buyout be funded with something other than a refinance?
Sometimes — cash, an offset against other assets, or a different loan structure may be options. What is available depends on the specifics.
Whose value of the home is used?
The settlement may specify a valuation method; the lender will rely on its own appraisal for financing. Those two numbers are not always the same.
About the author
Abdel Khawatmi, CDLP®
Certified Divorce Lending Professional and founder of Got Mortgages, a division of Paramount Residential Mortgage Group, Inc. Abdel works with divorcing homeowners, attorneys, mediators, financial professionals and real estate professionals across New Jersey. NMLS #1712023. He is not an attorney, tax advisor or financial advisor, and this article is educational only.