How do you buy out a partner?
When you jointly purchase a house with your partner, there may come a time when you decide to go your separate ways, and the best option is to buy out your partner to take ownership of their share of the property. This is known as a "transfer of equity".
The first step is to have the house valued. It is important to determine the current value, otherwise known as the market value of the property. You can evaluate this by comparing it to recently sold properties in the area. However, in order to get an accurate valuation that you can rely on and that mortgage lenders and conveyancers can work with, you should instruct a chartered surveyor. You can also get valuations from estate agents, but if you do, make sure you get multiple valuations and don’t rely on one.
The next step is to find out how much is left on the mortgage. You can do this by contacting your mortgage lender or looking at recent mortgage balance letters from them. Once the house has been valued, you can determine the home's equity by subtracting any outstanding mortgage balance from the market value of the property. For instance, if the property is worth £400,000 and you owe £250,000 on the mortgage, the equity is £150,000.
Work out how much each person paid towards the deposit or how much equity each person has in the property. You may have a Deed of Trust in place which outlines who owns what percentage in the
property. Usually, if you are buying your partner out, you need to pay them half of the equity in the house, along with their contribution towards the deposit.
The most common option when you’re buying out a partner is to have the house remortgaged. You may not have spare cash to pay your partner, and remortgaging the property is an option that can come in handy in this situation. You’ll need to get a new mortgage to pay off the existing mortgage and to release equity in the property to give to your partner. You will need to show the new lender that you meet certain requirements to take on the mortgage on your own without your partner.
The last stage is to have the legal documents changed so that one person is removed from the title deeds and mortgage. Once the legal documents are completed and funding is secured, you will need to sign the paperwork related to the mortgage refinancing. You will also need to instruct conveyancing solicitors to manage the transfer of equity.
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