Can you stay in the shared home after a divorce? How the loan and collateral are arranged

Yes, it is often possible to stay in the shared home after a divorce if you can buy out the other party’s share and the bank approves the financing based on one person’s income. In practice, the solution depends on repayment capacity, the collateral value of the home, and whether additional collateral is needed. In many cases, additional collateral can be covered with savings, other assets, or Garantia’s mortgage guarantee. Garantia offers mortgage guarantees that can help in life changes like this.

Divorce changes many things at once. For many parents, the most important thing is that the child can stay in the same daycare or school, keep friends close by, and continue everyday life in as familiar a way as possible. When so much is changing, keeping the home can bring continuity to daily life.

For many, the key question is:

Can I continue living in the current home after a divorce and buy the other party’s share of the home?

Often the biggest challenge is not the decision itself to stay in the current home, but how the other party’s share is financed in practice. When the loan and housing costs become the responsibility of one person, the bank reassesses the situation: Are the income and collateral sufficient?

What does buying out a home after a divorce mean?

When one party wants to stay in the shared home after a divorce, this means in practice buying the other party’s share and taking responsibility for the mortgage.

In practice, this usually requires:

A new credit decision from the bank
An assessment of repayment capacity based on one person’s income
A review of the collateral structure

Even if the mortgage has been managed flawlessly, the bank reviews the situation as a new whole, with future risks and repayment capacity in mind.

Good to know
Transfer tax
Buying out a home in connection with a divorce may be exempt from transfer tax if ownership is transferred in the division of matrimonial property and no assets from outside the marital estate are used as consideration. If a spouse’s share is bought out using, for example, a new loan or other outside funds, transfer tax is generally payable to the extent that the buyout is financed with those funds. Tax treatment always depends on the details of the arrangement, so it is worth confirming the matter with the Finnish Tax Administration or an expert well in advance.
An example to clarify
Situation A (may be exempt from transfer tax): You have a shared home and joint savings. You divide the assets so that you receive the home and your spouse receives the savings and other assets. Because the consideration comes from assets divided in the matrimonial property division, transfer tax does not generally arise.
Situation B (transfer tax may be payable): You buy your spouse’s share of the home by taking additional mortgage financing. If the buyout is financed with that additional loan, transfer tax is generally payable to the extent that the payment is made with assets from outside the marital estate.
Cohabitation
The tax treatment described above may apply only when a marriage ends and matrimonial property is divided. When a cohabiting relationship ends, buying the other party’s share of the home is generally treated as a normal transfer, in which case transfer tax is generally payable on the acquired share. However, tax treatment always depends on the details of the arrangement, so it is worth confirming the matter with the Finnish Tax Administration or an expert. This may increase the financing need, which makes collateral even more important.
Source: Finnish Tax Administration: Transfer tax in an exchange deal, distribution of matrimonial assets and distribution of estate.
The Finnish Tax Administration states that if assets from outside the marital estate are used in the division, transfer tax must be paid to the extent that those outside assets were used to acquire real estate or securities.

Why is additional collateral often needed in a divorce situation?

When buying out a home, a collateral issue often arises even if repayment capacity is otherwise sound.

The bank only treats part of the home’s market value as collateral value, most often 70%. When one party to a divorce buys the other party’s share, the financing need may increase, but the collateral does not increase at the same pace. This creates a situation where:

The home’s collateral value alone is not enough to cover the full loan
Additional collateral is needed
Tying up your own assets or using a guarantee from family or friends may not feel appealing

An example makes this concrete: if a couple has a home worth €200,000 and a loan of €130,000, the collateral is usually sufficient. But if buying the other party’s share increases the financing need by, for example, €30,000, the loan rises to €160,000. If the bank uses 70% of the market value as the home’s collateral value (€200,000 → €140,000), the collateral value is no longer enough to cover the loan and additional collateral is needed.

For many people, this need for collateral comes as a surprise – especially if the home is familiar and the household finances are otherwise on stable ground.

Repayment capacity is key, but having a buffer matters a lot

After a divorce, buying out the home can be a fully workable solution as long as the finances can support the overall situation going forward. The bank looks at factors such as:

How loan servicing costs, maintenance charges, and other housing expenses fit into the monthly budget
Whether there is still a financial buffer for unexpected expenses
How rising interest rates or other changes would affect repayment capacity
Typical repair needs considering the age and condition of the home: how possible renovation costs would affect repayment capacity

Without an adequate buffer, the risk is that finances become too tight precisely when the life situation is already stressful. In practice, the bank’s assessment aims to ensure that the borrower does not run into payment difficulties even if the household faces surprises – for example, temporarily lower income or unexpected expenses. Well-structured financing provides flexibility and time to adapt to the new situation.

Three ways to cover the need for additional collateral in a divorce situation

In a divorce situation, the need for additional collateral can be addressed in several ways. The most suitable option always depends on the overall picture.

Additional collateral can also be sought from family members, for example from parents. In many situations, the assets of a spouse’s parent or another close relative may already have been used as additional collateral. After a divorce, however, people often want to end arrangements like these so that financial ties do not remain part of the new life situation. That is why Garantia’s mortgage guarantee can be a clear and neutral option for many people.

1) Your own savings or investment assets

The need for additional collateral can be covered by using your own savings or investments to buy out the home. However, it can often make sense to use only part of those funds and leave some savings as a buffer and for wealth-building – in other words, to invest in more than just your own home.

After a divorce, everyday life may also involve one-off purchases: when assets are divided, new appliances or furniture may be needed. For that reason, it is often wise to leave some room in your savings for everyday expenses and avoid emptying your savings account down to the last euro. Any remaining need for additional collateral can then be covered through other solutions, such as Garantia’s mortgage guarantee, depending on the overall arrangement agreed with the bank.

2) Other assets as collateral

For example, a holiday home or other assets can serve as collateral if they are available and meet the bank’s collateral criteria.

3) Garantia’s mortgage guarantee

Garantia’s mortgage guarantee can help cover the need for additional collateral in situations where the collateral value of the home is not sufficient. This is a typical solution when additional collateral is not otherwise available or when the borrower does not want to use other assets as collateral for the mortgage. The bank always makes the final credit decision and determines the financing terms.

How should you prepare for a bank discussion in a divorce situation?

Good preparation makes the discussion easier and clarifies the alternatives. Although the bank ultimately assesses the financing terms and the practical process, your own advance preparation helps move the conversation forward and makes it easier to see what is realistic. Before the meeting, it is worth considering at least:

How much in monthly housing costs your finances can realistically support
Which things can be arranged quickly for the buyout (for example, deed-related documents, transfer of ownership, and loan arrangements) and what timeline you would prefer
Whether you want to keep some of your savings as a buffer for difficult times or for wealth-building

When the overall picture is clear to you, it is easier for the bank to assess the situation and propose workable solutions.

Summary

In a divorce situation, keeping the home is an important goal for many people and often fully possible. What matters is that the financing and collateral are structured realistically so that the arrangement remains sustainable even during a more uncertain period.

When the alternatives are explored early and the bank is involved from the outset, decisions are easier to make calmly and with proper consideration.

Next step

If you are considering whether you could stay in the shared home after a divorce, first ask the bank for a preliminary assessment of the terms on which financing could be arranged based on one person’s income. At the same time, you will find out whether the home’s collateral value is sufficient or whether additional collateral is needed.

That will quickly show whether Garantia’s mortgage guarantee could be the right option for you.

If additional collateral is needed, the bank can assess whether Garantia’s mortgage guarantee could be a suitable solution for your situation.

If additional collateral is needed in a divorce situation, it is useful to understand in more detail why Garantia’s mortgage guarantee is, for many people, a practical way to supplement mortgage collateral.

Ville Korte
Head of Sales and Marketing
Garantia

The author has over 20 years of experience in mortgage lending at Garantia and in the banking sector.