Divorce Buyout Loan
for California Real Estate

North Coast Financial is a direct California private money lender providing divorce buyout loans for California real estate. Based in San Diego, North Coast Financial has over 40 years of experience providing private money loans throughout the state of California with fast approvals and funding, competitive rates and reliable service.

Divorce buyout loans are a specialized type of short-term loan used to payout a spouse. Once the spouse is removed from the title of the property the remaining owner of the property is able to refinance into a long-term traditional type of loan.

Divorce buyout loans are considered a consumer purpose loan which forces lenders of any type to verify income and ensure the borrower is able to meet a debt-to-income ratio requirement (up to ~45%). The borrower must also have a high enough credit score to be able to refinance into a long-term traditional loan (~620+). Approval can be obtained within 1-2 days in most cases and funding takes ~2.5 weeks once the loan process is started. Loan amounts are available up to 60-70% of the current value of the property.

Contact North Coast Financial now for a free consultation.

When a marriage ends, the question of what happens to the family home is often the most emotionally and financially complex challenge. In California, a community property state, the marital residence is typically considered an asset owned equally by both spouses. If you are determined to keep the house, you must execute a divorce buyout loan or divorce equity buyout loan to pay your ex-spouse their share of the equity.

The process involves securing a new mortgage, typically a cash-out refinance, to payoff any existing loans and provide additional cash out to buyout the other spouse’s equity.

The California Community Property Challenge

California’s status as a community property state means that any assets acquired during the marriage are owned 50/50 by both spouses. This principle directly impacts how the marital home is divided. To keep the house, you must pay your ex-spouse for their half of the community property equity.

For example, if your home is valued at $800,000 and the remaining mortgage is $250,000, the total equity is $550,000. Your ex-spouse’s share is $275,000. You would need a divorce mortgage buyout amount to cover the $275,000, plus pay off the existing $250,000 mortgage, totaling a new loan of $525,000.

The Role of the Divorce Decree

Lenders often require a legally binding document such as a Marital Settlement Agreement (MSA) or divorce decree to process a divorce buyout loan. This document must explicitly state that:

• You are awarded 100% ownership of the property.
• You are required to pay your ex-spouse a specific equity buyout amount.
• Your ex-spouse must sign a deed to transfer their interest to you.

Without this legal framework, a lender cannot proceed with the specialized financing required for a spousal buyout.

How a Divorce Buyout Loan in California Works

A divorce buyout loan is typically a cash-out refinance specifically structured to facilitate the transfer of ownership during a divorce. It allows you to refinance to buy out a spouse by borrowing more than the existing mortgage balance.

Key Benefits of a Spousal Buyout Refinance

1. Sole Ownership: The most critical benefit is that the home and the new loan are solely in your name. This removes your ex-spouse from the mortgage obligation, protecting your credit and fulfilling the requirements of the divorce decree.

2. Tax Advantages: In many cases, the interest paid on the new mortgage remains tax-deductible, similar to a standard home loan (consult a tax professional for advice).

3. Preserve the Home: You get to keep house after the divorce buyout mortgage is completed, maintaining stability for yourself and any children, and avoiding the costs and stress of selling.

Qualifying for the Loan

The primary hurdle in securing a California divorce buyout loan is qualifying for the new mortgage based on your income alone. A divorce buyout loan from a private lender like North Coast Financial is only a short-term loan. The borrower will need to qualify for the short-term private loan and then refinance into a long-term traditional once the spouse is removed from title. Private lenders and long-term lenders will assess your:

• Credit Score: A solid credit history is essential.
• Debt-to-Income (DTI) Ratio: Your total monthly debt payments (including the new mortgage) must be a manageable percentage of your gross monthly income.
• Income Stability: You must demonstrate a reliable source of income sufficient to cover the new, larger mortgage payment.

If you are receiving spousal support (alimony) or child support, lenders may be able to count this income toward your qualification, provided it is court-ordered and has a consistent history of receipt.

Case Scenario: The Johnson Family Buyout

Maria and David Johnson owned a home in San Diego, California, valued at $1,000,000 with an outstanding mortgage of $300,000. They agreed in their Marital Settlement Agreement that Maria would keep the home.

1. Equity Calculation: $1,000,000 (Value) – $300,000 (Mortgage) = $700,000 (Equity).

2. Buyout Amount: $700,000 x 50% = $350,000.

3. Loan Need: Maria needs a new loan of $300,000 (to pay off the old mortgage) + $350,000 (to pay David) = $650,000.

4. The Solution: Maria secures a divorce buyout loan for $650,000. The funds were used to pay off the original $300,000 mortgage, and the remaining $350,000 was wired directly to David at closing. David signed a deed, and Maria became the sole owner and borrower.

This scenario illustrates how the divorce buyout loan acts as a single financial instrument to satisfy both the existing debt and the equity division required by California law.

Your Next Steps to a Successful Buyout

The path to a successful divorce buyout requires coordination between your legal and financial teams.

1. Consult Your Attorney: Ensure your divorce decree or MSA is finalized and clearly addresses the property division and buyout amount. This is non-negotiable for the lender.

2. Gather Financial Documents: Collect recent pay stubs, tax returns, bank statements, and the current mortgage statement.

3. Contact a Specialist Lender: Work with a private lender who has the flexibility to provide divorce buyout loans in California. They understand the unique requirements of this type of loan that traditional lenders typically cannot help with.

Call us today at (760) 722-2991 or fill out our contact form to speak with a California buyout loan specialist. We can help you navigate the complexities and secure your future in the family home.

Frequently Asked Questions (FAQ)

Q: What is a divorce buyout loan?

A: A divorce buyout loan is a specialized cash-out refinance that allows one spouse to obtain a new mortgage in their name only, using the funds to pay off the existing joint mortgage and pay the ex-spouse their share of the home’s equity as required by the divorce decree.

Q: Does my ex-spouse have to sign the new loan documents?

A: No. The goal of the divorce buyout loan is to remove your ex-spouse from the mortgage entirely. They will need to sign a deed at closing to legally transfer their ownership interest in the property to you.

Q: Can I use a divorce buyout loan if I have bad credit?

A: Qualifying depends on the severity of the credit issues and your overall financial profile. Credit scores in the low 600’s are usually the lowest acceptable scores depending on the lender.

Q: How is the home’s value determined for the buyout?

A: The home’s value is typically determined by an appraisal. In some cases, the divorcing couple may agree on a value or use a court-ordered valuation, but the lender will rely on their own valuation for the loan amount.

Q: What if I can’t qualify for the new mortgage on my own?

A: If your income is insufficient, you have a few options: you can seek a co-signer (a non-occupant co-borrower), explore Non-QM loan options that use alternative income verification or the home may need to be sold.

Q: Is the buyout amount taxable income for my ex-spouse?

A: Generally, the transfer of property between spouses in a divorce is not a taxable event. The buyout payment is considered a division of marital assets, not income. Consult a qualified tax professional for advice specific to your situation.

Q: How long does the divorce loan buyout process take?

A: The lending process to buy out a spouse typically takes around 2.5-3 weeks. A refinance into a long-term traditional loan usually takes around 30 days. The overall timeline is often dictated by how quickly the divorce decree is finalized and the necessary legal documents are provided.

Q: What is the maximum Loan-to-Value (LTV) for a divorce buyout loan?

A: For a spousal buyout the highest LTV is typically 65-70% of the current value of the property.

Q: What is the difference between a cash-out refinance and a divorce buyout loan?

A: A divorce buyout loan is a specific type of cash-out refinance. The key difference is that the funds from a standard cash-out can be used for anything, while the funds from a divorce buyout loan must be used to pay off the existing joint mortgage and pay the ex-spouse their equity share, as mandated by the divorce decree.

Legal Disclaimer: We are a financial services provider, not a law firm. The information provided herein is not legal advice. You must consult with a qualified California family law attorney to ensure your divorce decree, property settlement agreement, and all related legal documents are correctly prepared and legally binding. We cannot process a buyout loan without a final, legally executed divorce decree.