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Homesteading A Florida Property While Going Through Divorce

“Can I file for homestead on the home I’m buying, even though our divorce won’t be finalized for another month or so?” someone asked me during a closing I did this week.

In a minute I’ll tell you the answer, how we got it, and who we got it from. And I’ll give you a little bit of the backstory. So, keep reading to the end.

But first, we have to clarify a few things. Like what is a homesteaded property, why it’s important to you as a Florida homeowner, and how it saves you money.

What Is A Homestead In Florida?

Questions about homestead are fairly common when someone is buying a home in Florida. Especially, if the new home buyers are moving in from out of state.

So, just in case you’re new to Florida and don’t know what Homestead is, let’s break it down.

Homestead exemptions are a way to decrease your overall tax burden in the state of Florida. Homesteading your property means that you declare that house to be your primary residence. There are limitations as to the size of the lot depending on where it is located.

But homesteading your property, you can claim up to $50,000.00 of tax exemptions by reducing your home assessed evaluation and the taxable amount.

And on top of that, it provides a form of protection. A creditor in Florida, for example, wouldn’t be able to force the sale of your homesteaded property because your spouse ran up a crazy amount of gambling debt.

So, if you are moving to Florida and planning on buying a house, you’ll definitely want to apply for your homestead at the office of the county property appraiser as soon as possible.

Now Back To The Story Of Our Divorcing Couple

I’m signing documents with a man and a woman who were in the process of getting a divorce. I didn’t even realize it at first. They were super chill and friendly. I didn’t pick up on any bad vibes between them, so it almost caught me by surprise when the question came up.

Because I have had to sit down with couples going through the process of getting a divorce, and usually it isn’t much fun. Even if they aren’t in a bad mood, you can tell something is off between them. And things just feel awkward.

So, even though I’m busy engaging them in conversation and light patter as I run them through the documents, explaining what each document is that they are signing, and showing them where to sign, I still pick up on quite a bit from their looks and words and actions.

But this time, it was impossible to sense anything out of the ordinary. I thought they were just another ordinary couple buying a home.

Which is why her question caught me off guard about homesteading her property.

“Can I go ahead and homestead my house since it’s my primary residence?” she asked.

“Yes, of course,” was my reply, until I understood everything wasn’t quite what it seemed.

“Can I file for homestead on the home I’m buying, even though our divorce won’t be finalized for another month or so?”

That one had me stumped. I’d never been asked that question before. I’ve signed documents with couples where the husband lived in New Port Richey and the wife lived in Orlando. I’ve signed documents where one spouse claimed residence in Florida and the other in Maryland.

But this was a new one for me after doing over 850 closings over the past several years, it’s fun to have someone ask you a question that you’ve never heard before.

“Let me check with the title company,” I said.

I trotted over to ask the escrow officer what her thoughts were on the matter. She wasn’t 100% sure and suggested that we call the Property Appraiser’s office to get their statement on the matter.

I mean, sure, we all had a general idea of what the answer would be, but you still want to be 100% sure that you’re giving your clients the right information.

Talking To The Property Appraiser About Homestead

So, the title processor called the property appraiser and they confirmed what we already suspected.

Since the soon-to-be-ex-husband already lived in a home that was homesteaded, the soon-to-be-ex-wife couldn’t file homestead on her property until the divorce was finalized.

Whew. Case closed.

Wife signed the documents buying herself a new home. Husband signed the few documents that required his signature (like the Mortgage since he was waiving his rights as a non-borrower on the loan). And they went on their way.

The moral of the story is, if you’re buying a home in Florida, you definitely want to homestead your property to get your tax exemptions and extra protections.

But if you’re in the process of getting a divorce, you can’t homestead the new property until the divorce is finalized.

Divorce signings. I’ve done a good number of those. As I’m sitting here writing, several other stories come to mind. But they’ll have to wait for another post another day.

Meantime, ask any questions in the comments below.

P.S. And if you’re looking to buy or sell a house in Florida, call me at (727) 249-4022. You can read my Complete Guide To Buying A Home or How To Sell Homes Fast for Top Dollar

P.P.S. And if you’re looking to get married…I’ll be happy to officiate your wedding. 😉 Here are some common questions about Florida wedding ceremonies. You can inquire about your wedding date to see if it’s available.

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How To Use Your Primary Residence To Buy A Second Home

Here’s a tip for buying a second home that I came across this week in a closing that I did over in Tampa.

So, they had already been living in their main home for a good while with a lot of equity in it.

They took out a Home Equity Line of Credit and used the funds to buy a second home closer to the beach.

I normally wouldn’t have even known what they were going to do with it, but when we go to the page they had to sign with the Occupancy Affidavit, things got a little sticky.

Now, in case you’re not familiar with the Occupancy Affidavit, it’s a form where that states whether the property will be their primary residence or investment property.

Why Does It Matter If It’s A Primary Residence or Investment Property?

After they sign it, I have the signers take an oath that the information is true and correct. Then I notarize the document.

So, here’s where things took a minute to get sorted out. Because the Occupancy Affidavit stated that the property they were refinancing was their primary residence.

And they paused and read it again. Then said, “No, but it’s not our primary home. It’s a second home.”

At this point, I was confused. The property address where I met them was their residence. And it was the property that was being used as collateral for the loan.

Then they explained that they were taking out the HELOC (Home Equity Line of Credit) and using the cash out to buy this second home.

That’s when I finally understood what was going on.

Using Their Primary Residence To Purchase A Second Home

I thought that was an interesting strategy for getting the benefits of refinancing on a primary home since technically they were taking out the loan against their primary residence.

Usually, when I see people buying a second home or investment property, they use the second home as collateral, where the interest rates are a bit higher.

Now, I don’t know all the details and didn’t ask, but I thought this was a brilliant stroke of genius on the part of the mortgage broker that helped him with the loan process.

In the end, they understood that, yes, it was their primary residence that they were taking the HELOC (Home Equity Line of Credit) out on and using as collateral for the loan.

Since it was a cash-out refinance, they were getting the funds wired into their account and could then use it to do whatever they wanted to with it.

Obviously, I’m no lawyer, so I don’t all the legalities behind this. Nor am I a financial advisor or mortgage broker, so I can’t recommend you do the same.

But it’s definitely an idea worth talking about with your mortgage broker or loan officer if you’re looking to buy a home in this crazy market.

Especially, if you have a lot of equity in your current home.

3 Steps To Buying A Second Home With Your Primary Residence

Let’s break this down as simply as possible…and then talk about what you can do with two homes.

Step 1: Cash Out The Equity In Your Primary Residence

Get a cash-out refinance or HELOC (Home Equity Line of Credit) to get the benefits of using your primary residence

Step 2: Buy The Second Home With The Liquid Equity From Your Original Home

Use the cash out to buy a second home or make a large down payment

Step 3: Congratulations Because You Now Own Two Homes

Enjoy the benefits of owning 2 homes, and take advantage of writing off the tax breaks you get from an investment property.

I guess that was really only two steps since enjoying your new homes wouldn’t actually be considered a step.

But it would sound too easy if I said this was only a 2-step process for buying a second home with the equity from your primary residence.

So, what can you do with two properties?

I don’t knooooow…

Idea #1: Use one of them as a weekend home or temporary getaway.

Idea #2: Rent one of them out as a short-term rental (like AirB&B) when you’re not using it. That way you can just block out the time you actually want to use it. Use the extra income to pay off the mortgage.

Idea #3: Or move permanently into the second home. If you like it better than the first, go ahead sell your old home.

Since you don’t have to worry about moving, you won’t be under any rush or pressure to sell it.

Bonus Idea: Here’s a bonus idea for you…

Later down the line, once you’ve paid off some of the loan and built equity back up, you can use the second home in a 1031 exchange to buy a third (even bigger and better house) without having to worry about capital gain taxes.

The possibilities are endless.

Let me know what you thought of this strategy in the comments below.