Prior to your separation, you may have owned your own home, or like many families, you may have taken out a mortgage on your home.
After a divorce, many have a desire to buy another home. After all, it’s better to build an asset with real estate rather than throw away money on rent every month. But does it truly make sense to jump right back into the real estate market again?
To make that difficult decision, it’s important to weigh a number of factors.
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Toronto’s Experts in Family Law and Divorce
The Matrimonial Home
The primary consideration is how much equity have you built up with your matrimonial home. If you’ve been married for some time and have had little trouble paying your bills, you may have been able to pay down a considerable amount of your mortgage. If this is the case, then you likely will have a considerable down payment for your new home. However, there’s more to think about. A mortgage is only one house-related expense every month. You have property taxes, utility bills, insurance and maintenance on the property. If you are considering moving into a condo, then you also have condo fees to consider. Furthermore, the sale of your matrimonial home will attract real estate fees, and transfer tax.
Getting Comfortable with your New Single Status
I’ve mentioned this before; you may want to get used to your new single status. Your household income has likely gone down and your expenses have gone up considerably. Getting used to your monthly financial obligations by renting is not such a bad short-term consideration. As a renter, you’re not obligated to pay the same expenses as a home owner, and you are usually not responsible for maintaining your place. These things may not seem like a lot, but they do add to the day-to-day stress of post-divorce life.
Understanding Your Income and Expenses
We’ve discussed the importance of understanding your monthly budget and how it can help to alleviate some of the financial stress. It’s important to realize your monthly income and total monthly expenses. This should be your primary determining factor in whether you should rent or buy.
If you get a lump sum amount for spousal support, try investing it in an annuity that pays you monthly and have it mirror either your rent amount and expenses, or your mortgage, taxes and expenses. Having this money earmarked for your largest monthly expenses should help you through the budgeting process.
One final consideration is the state real estate market. You can’t often plan for your divorce to occur when the market is affordable. If you divorce finalizes in the heat of a spring market, you could be overpaying for what you want, or end up compromising on buying the house you want due to affordability reasons.
Renting gives you a time buffer. You can sit on the sidelines until a house comes up in your desired neighbourhood, with all the features that you’re looking for, or until there is a downturn in the market.
Renting may also allow you to save more money to put into a down payment on a purchase.
Rent or Buy?
Every individual’s situation is unique. The prime consideration is affordability and managing your cashflow accordingly. Remember that you should always have a nest egg saved in the event of a home repair emergency if you own a home. It could be an appliance, furnace or roof that needs to be replaced, but when these things fail, they need to be addressed immediately. If you are worried that you won’t be able to establish a nest egg, and will require a home equity line of credit should an unexpected expense arise, this may be a good indicator that renting is the way to go.
Buying a home is a huge step and should be celebrated, but not if it leaves you house poor every month.