A Place to Live After Divorce: Renting or Buying a Home
You’ve made countless decisions, let’s heap on one more, why don’t we? Figuring out a place to live after divorce.
So, what are the options on the table? And how do you choose the right one for you?
Let’s dive in.
Earlier this year, I was talking to a friend (let’s call her Lisa) about her divorce, what happened, and how she managed:
Lisa became a single mother late 2008.
People were losing homes, foreclosing, and scraping by to make things work. Lisa was going through a divorce. She got custody of the children and faced one of the most difficult decisions of her life: stay in the home they have known or buy or rent a new one.
She stayed.
Lisa stayed for the kids and spent 5 years feeding her children cereal for dinner to keep them in their school district - every day drowning in the mortgage payment meant for two incomes.
Eventually Lisa’s income increased, and she felt more comfortable and still loves her home to this day.
But what are the other options if she truly wasn’t willing or able to spend every dollar on her mortgage?
- Option A: Stay in the marital home
- Option B: Rent a home
- Option C: Buy a new property
A general rule of thumb for home affordability is to spend less than 25% of your take-home income. If you spend more than that, managing your other financial commitments becomes more challenging.
Now, let's compare the pros and cons of each housing option after a divorce. Keep in mind that these are the levers that you can pull, with their outcomes, not a recommendation for or against any option.
Option A: Stay in the marital home
This one may feel like a win (and it might really be!), but unless you can afford it, you may end up scraping by like Lisa, or lose the house altogether.
Pros:
- Emotional stability and familiarity.
- Potential financial advantages, such as existing mortgage terms or home equity.
Cons:
- Constant reminders of the past.
- Responsibility for maintenance and associated costs.
- If you have to buy out your partner, it may be harder to reach other financial goals. Having more easily accessible cash (not tied up in home equity) can provide more options in the long run.
When it is right for you:
You adore where you live, your community and it is the right size for who you envision yourself becoming. + the home is already paid off, or the mortgage is less than 25% of your take home income.
Option B: Rent a new place
Maybe while separated, you rented a place. This tends to be an underrated option when unsure of where you will end up, but it can add to the chaos if you have to move repeatedly.
Consider the story of another woman, Deb. She bought a place to be closer to her adult children, but after a conversation with her financial advisor, she realized she could afford her dream of a home near the coast. Now, Deb is living in a house with a stunning water view, surrounded by a supportive community. It might have been easier for Deb to reach this point if she had started with a temporary rental instead of paying real estate fees twice in a single year.
Pros:
- Flexibility and freedom to explore different neighborhoods.
- Reduced financial responsibility and maintenance burdens.
Cons:
- Limited control over property modifications.
- Lack of long-term equity-building potential.
When it is right for you:
You are in the phase of becoming and are unsure of where you want to land or want to explore traveling. + cannot or do not wish to buy a home that meets the 25% rule of thumb with a down payment.
Option C: Sell marital home and purchase a new home
And last, but not least: This option provides a chance for a fresh start but comes with a significant financial commitment, especially when you're still dealing with decisions from the divorce.
Pros:
- Establishing a sense of permanence and personalization (a fresh start).
- Potential long-term financial benefits, such as home equity and tax advantages.
- Ability to adjust the size of the property to meet your needs.
Cons:
- Financial commitment and responsibility.
- Lack of flexibility for future changes.
When it is right for you:
You want a fresh start and know where you want to end up – be it locally or across the globe. + it meets the 25% take-home income rule of thumb + you have funds for a down payment.
Other things to consider:
Reflect on why you initially moved and whether that reason still holds after the divorce.
Do you like the schools, and will you keep your children enrolled? If you have shared custody and your ex has moved, where will the children go to school?
Is the local community supportive of the future you envision?
Do you have a job here (that you like)? If it isn’t something that you like and/or doesn’t pay well, consider renting until you know where you want to be.
Do you have a good credit score? There are options for spouses who do not have their own credit- based on income and affordability. However, the interest rates may be higher than other loans.
Can you afford it? What are the monthly expenses- including mortgage, payments and repairs? Regardless of if you love something, if it doesn’t make sense financially, it isn’t an option.
How deep are your roots? Is your family close by? Friends? Support is key to dealing with a divorce and having family and friends close by may just make things a little bit easier. Consider how important this is in making your decision.
Need some additional support?
Build your team to maximize what you have and reduce the overwhelm. Seek the assistance of a financial advisor who specializes in working with independent women.
How does a financial advisor help?
- Asset division before or during a divorce.
- Creating new budgets.
- Understanding tax implications.
- Planning for retirement changes.
- Educating you on the possibilities available.
If you're interested in learning more, let's see if we are a good fit >
More on the Blog:
How to financially and emotionally navigate your divorce >
Any opinions are those of Charlotte Galamb and not necessarily those of Raymond James. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. You should discuss any tax or legal matters with the appropriate professional.
