When you buy a house with someone else, there’s always some risk involved. It’s unlikely you bought a house with the intention of one day buying out a friend, relative, romantic partner, or business partner, but that scenario happening is a possibility.
Deciding what to do with a major asset like a house when a personal relationship breaks down is a significant challenge. You could agree to sell the property and split the proceeds, or you might prefer to buy the other person out.
A house buyout isn’t your only choice, but it’s a common one. We’ve put this piece together to help you understand how to calculate buying someone out of a house and explore your options — whether you’re navigating a divorce or just want to dissolve a financial partnership.
Before we get into the weeds, it’s important to note that you should consult an attorney before making any decisions about what to do with a big shared asset like a house. Attorneys will help you navigate your specific situation better and make the process less stressful. This is all informational, not legal, advice.
If you’re going through a divorce, your options depend on whether you live in a community property state or equitable distribution state.
In community property states, all assets and debts accrued during your marriage are divided 50/50. If you bought the house before you got married, it may not factor into the divorce.
In equitable distribution states, a judge may decide on the equitable distribution of property if you and your ex-spouse can’t come to an agreement. There are only nine community property states: Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington, and Wisconsin.
That said, when you need to buy someone out of a house, you typically have three options.
In the case of shared ownership of a home, you each have equity in the home. If you bought the house together, you will typically split the equity equally, which means you can just pay the other person for their portion of the home in cash.
In divorce proceedings, this is where it’s important to know your state’s property laws. In equitable distribution states, you may have more negotiation power if you paid for more of the home upfront or can show you contributed more to the mortgage. This is where attorneys can be helpful.
You might not have the cash to buy out a partner or ex. In that case, you can refinance your mortgage, cash out the equity you’ve built up, and use it to buy out a partner.
Refinancing will also remove the other person’s name from the mortgage, eliminating them from the legal responsibility of making payments and removing their rights of ownership. Since it accomplishes both financial and legal transactions, refinancing then buying someone out can be an efficient way to wrap up a buyout.
However, if you’re refinancing, you must have the income to qualify for the mortgage on your own. If you can’t support the mortgage by yourself, you may have to sell the home or come up with a different arrangement. Don’t forget that in addition to carrying the mortgage yourself, you’ll also be responsible for 100% of home maintenance costs like utilities and repairs. Make sure you can afford it all!
Finally, if you can’t afford to buy out a partner and they can’t afford to buy you out, selling the home is probably the best option. In a community property state, you’ll split the proceeds 50/50 no matter what. In an equitable distribution state, a judge will help determine how to split the proceeds if you can’t come to an agreement.
If you want to buy somebody out of their share of a house, you don’t want to pay too much. You need to determine their share of the equity. In the case of a divorce, you won’t know your respective shares of the equity until a financial settlement is finalized, but you can take steps to estimate what it will cost to buy the other person out. Follow these steps.
The first step is to get your home appraised by a professional. You can agree to split the cost of an appraiser (which can be up to $400) or one of you can pay for it in full. An appraiser will give you an accurate assessment of your home’s fair market value, which will serve as the foundation for calculating how much equity you each have.
You could also use a real estate listing service to get an idea of comparable home values around you, but it’s not ideal.
Once you’ve determined the value of your home, subtract what you owe on the mortgage to determine how much equity each of you probably has.
So, imagine your property appraises for $600,000. You owe $200,000 on the mortgage still. $600,000 - $200,000 = $400,000 of equity for both spouses. That’s $200,000 in equity for each spouse.
Finally, to determine how much you must pay to buy out the house, add your partner’s equity to the amount still owed on the mortgage. (Remember, if you’re buying that person out, you’re taking on the whole mortgage amount.)
So, using the previous example, you would need $400,000 ($200,000 remaining mortgage balance + $200,000 to buy out the partner’s equity) to buy out the house.
Not all partnerships are completely equitable. As long as you’re not in a community property state, you can protect yourself if you know you’ll spend more on a property than a partner.
To protect your beneficial interest (your share of the property), you may want to execute a deed of trust before pursuing with buying somebody out. This special deed is a legal agreement of who owns how much of the property and what you will do if either of you decides to sell. You cannot be joint tenants if you wish to execute a deed of trust; you must sever joint tenancy first and register as tenants in common.
Putting together a deed of trust will require attorneys for both sides so you can come to an agreement on who owns what without having to go to court. If you’ve spent significantly more on the property than your partner, you should negotiate a deed of trust before trying to buy them out. It could lower the amount you must pay to buy them out.
Whatever your situation or your reasoning, buying a person out of their share of a house doesn’t have to be complicated. The process depends on how well each party gets along and a willingness to come to an equitable agreement. This guide should give you an idea of how the process could work and how much you should be ready to spend to buy somebody out of a house.
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