Emily and Jason, a married couple in Vancouver, BC, decided to divorce after 12 years of marriage. They jointly owned a $1.2 million home, with a remaining first mortgage of $500,000. As part of their divorce settlement, Emily wanted to buy out Jason’s share of the home so she could continue living there with their two children.
However, Emily faced several challenges in securing financing:
- Jason Needed His Equity Immediately: Jason was relying on the $350,000 equity from his share to purchase his own property.
- Emily’s Income Alone Didn’t Qualify for a Bank Mortgage: She worked as a freelance consultant, and her fluctuating self-employment income made it difficult to meet traditional lenders’ debt service ratio requirements.
- Credit Score Impact: Due to shared debts from the marriage, Emily’s credit score dropped to 590, making it difficult to qualify for a prime lender.
- Urgent Timeline: Jason wanted the buyout completed within 30 days, but traditional lenders required more time for approval.
How a Private Mortgage Helped
Since Emily couldn’t secure traditional financing, she arranged for a private mortgage to buy out Jason’s share and keep her home.
✅ Loan Approved: A private lender provided a $900,000 mortgage (75% Loan-to-Value) based on the home’s equity, allowing Emily to pay off the first mortgage and Jason’s buyout.
✅ No Income Verification Required: The lender focused on the home’s equity rather than her self-employed income history.
✅ Fast Approval: The private mortgage was approved in 10 days, allowing Emily to meet the divorce settlement deadline.
✅ Interest-Only Payments: The loan was structured with interest-only payments at 9.5%, keeping monthly costs lower.
✅ One-Year Term: Emily was given 12 months to refinance with a B-lender or a prime lender once her financial situation stabilized.
The Exit Strategy
Since private mortgages are temporary, Emily had a clear plan to transition to a lower-cost mortgage:
- Rebuilding Credit: By paying down shared marital debts, her credit score improved to 670+ within 12 months.
- Showing Higher Income: She secured more long-term contracts in her consulting business, making her income more stable for traditional lenders.
- Refinancing with a B-Lender: After 12 months, she refinanced with a B-lender at 6.25%, reducing her monthly costs.
- Transitioning to a Prime Lender: After 2 more years, she improved her finances further and secured a prime mortgage at 4.1%.
Final Outcome
- Without a private mortgage, Emily would have been forced to sell her home, losing stability for herself and her children.
- With a private mortgage, she secured Jason’s buyout, kept her home, and refinanced to a better mortgage within 12 months.
- Her property appreciated to $1.3 million, giving her more equity when she refinanced.
Key Takeaways
- Private mortgages help individuals going through a divorce secure their home when traditional lenders won’t approve financing.
- Lenders prioritize home equity over income or credit challenges.
- A clear exit strategy (credit rebuilding and refinancing) is essential for transitioning to a more affordable mortgage.
Summary
Emily, facing divorce and needing to buy out her ex-husband Jason’s share of their $1.2 million Vancouver home, struggled to secure traditional financing due to her self-employed income and a low credit score. With Jason requiring his $350,000 equity share immediately, a private lender approved a $900,000 mortgage at 9.5% interest within 10 days, allowing her to retain the home while making interest-only payments. Over the next year, she improved her credit and income stability, refinancing with a B-lender at 6.25%, and later transitioned to a prime mortgage at 4.1%. This case highlights how private mortgages provide a crucial bridge for homeowners navigating divorce, enabling them to secure property ownership and transition to traditional financing.
