Can I Buy My Ex Out of Our House During Our California Divorce?
Answer: Well it just became a lot harder. (I am writing on October 11, 2022)
Interest rates are rising, home prices are falling, and the southern California housing market is turning into a nightmare for sellers. To illustrate the severity of rates on the market, consider some of these statistics:
The mortgage payment for a $1,000,000 home in the beginning of 2022 at a 3.25% interest rate would have been roughly $3,481 per month. Today, that same $1,000,000 home at the current rate of 6.85% increases the payment by 50% to $5,242.
The payment for a $2,000,000 property under the same circumstances has also jumped by 50% from $6,963 to $10,484.
Rate Source: Bankrate The above is based on 20% down, 30-year fixed, Principle & Interest only
The change in rates influences buying power, which impacts property values. Buyers are qualified for mortgages based on the monthly payment — that’s how buyers budget and how lenders assess risk. In order for those same buyers to qualify and afford the same home they could earlier in the year, home prices would need to be reduced by 33.6%.
This means that, assuming terms are equivalent, a $1,000,000 home needs to be purchased at $664,000 in order to have the same payment as at the lower rate. A $2,000,000 home needs to be purchased at $1,328,000, and so on. You can see what this means for buyout qualifications as well.
It was hard to buy a spouse out of a house for most people in a Los Angeles divorce or an Orange County divorce when the mortgage rates were low and it is harder now.
If you are facing complex decisions regarding California divorce planning including potential real estate buyouts in the context of divorce, contact us for a free consultation. Have a conversation, not a sales meeting.
Set realistic expectations.
Update values. A valuation that’s more than 30 days old is not helpful.
Rethink buyouts. Any client who has a mortgage pre-approval based on an old rate that hasn’t been locked in should get an updated approval to determine if a buyout is still viable.
Leave real estate terms out of court orders. No list price, price reductions, and other terms that are addressed in listing and purchase agreements. Parties should not be constrained by limits that have been placed in orders without the input of a real estate expert.