During an economic downturn, some couples who have decided to split up postpone moving. Instead, they opt for what’s known as a “domestic divorce.” They continue living under the same roof, waiting for their finances to improve before one or both can leave.
Given the rising real estate market, an increasing number of estranged partners are now moving out, often bent on buying property. But financial planners caution against making a hasty decision.
“It’s tough getting your bearings when going through a traumatic life event like divorce. Even if your divorce is amicable, it’s wise to go slowly when making a major money move,” said William J. Beecher, a veteran financial planner who’s been through divorce himself.
Leo Berard, a real estate broker and charter president of the National Association of Exclusive Buyer Agents, said it’s often prudent for a departing spouse to take a short-term rental before heading into a home purchase.
Still, he acknowledges that some resist this notion because of the hassle involved in renting first and moving later. If their finances and credit allow, such people would rather buy immediately.
Are you exiting a marriage and intend to buy a property? If so, these pointers could help:
-- Look for objective advice to help shape your purchase plans.
Besides changing their housing situation, newly divorced couples are often rebuilding their entire lives. “Making a sudden or impulsive decision when you’re facing so much uncertainty can lead to a costly mistake you’ll later regret,” Berard says.
Assuming they can afford it, he urges newly divorced homebuyers to spend a couple of hours reviewing their current budgetary picture with an accountant or financial planner who charges on an hourly basis. One way to find a fee-only planner is through the National Association of Personal Financial Advisors (www.napfa.org).
“Whenever you’re making a money decision, you have to keep your long-term financial goals in mind, such as sending your kids to college and saving for retirement,” said Beecher, a fee-only planner.
-- Realize that mortgage lenders may let you borrow more than is wise.
Financial planners say it’s always smart for prospective homebuyers to gain mortgage pre-approval before shopping for properties. That helps ensure they won’t waste time looking at homes above their price range. Also, a pre-approval letter gives you more credibility with sellers when bargaining for a home.
But Andrews notes that despite currently stringent lending standards, many people can still gain approval for a bigger mortgage than they can afford, given their expenses.
“Do an independent budget before you fall in love with a house,” said Andrews, a fee-only planner who heads her own firm.
“Divorce can be expensive and the costs of your transition are a big unknown,” Andrews said.
-- Don’t let a real estate agent pressure you into a premature purchase.
People going through a marital breakup face many stresses. That’s why Berard said it’s important they don’t compound the problem by working with a real estate agent who tries to hurry them.
“There are a few agents out there who just want a quick sale. But if you’re going through a divorce, you need to find someone to work at your pace,” he said.
He contends it’s a smart strategy for newly separated or divorced people to begin working with an agent as soon as they are sure they’ll be buying a home. At this early stage, the agent can help you get an overview of your market area.
“There’s no need to rush into a high-intensity shopping tour. Without pressuring you, your agent can help you check out alternative neighborhoods, price levels and housing styles,” Berard said.
Agents who enjoy working with buyers often gain special expertise in this segment of the real estate market. You can find such specialists through the Real Estate Buyer’s Agent Council (www.rebac.net), or by contacting the National Association of Exclusive Buyer Agents (www.naeba.org).
-- Analyze the implications of buying a home in one area versus another.
Newly divorced people — especially those on a tight budget — can face tough trade-offs in terms of location. To get the most for their money, some might believe an outlying suburb is the right choice.
But if you plan to start dating soon, an exurban neighborhood could be a lonely choice.
“Living far from the city, you’ll have fewer opportunities to meet other singles and fewer places to go for dates,” Berard said.
Decisions about location are all the more complex if you and your former spouse have young children.
“Whether you have sole custody, joint custody or just visitation rights, you’ll want to spend as much time with your kids as possible. That’s why living near your ex makes tremendous sense,” Berard said.
Assuming that proximity to your children is a top priority, you might be willing to buy a relatively small place, such as a condo apartment, to achieve that goal. Ideally, your new home will still allow enough bedroom space to comfortably accommodate the kids.
“Obviously, not everyone going through a divorce is in a position to buy any home, let alone one near the kids. Their job situation might make that impossible. But if you can possibly afford to live near your children, that’s greatly preferable,” Berard said.
Ellen James Martin, a former real estate editor at The Baltimore Sun, gives advice for anyone buying, selling or financing a home.