How to Buy Out Your Spouse's Share of the House

One spouse keeps the house and pays the other spouse for their share of the equity. The money comes from a new loan, cash, other assets, or a mix. Ask a lender and your attorney which mix fits your case.

Maryland Family Law Article section 8-205(a)(2)(iii) addresses this for a jointly owned home used as the principal residence. Subject to the terms of any lien, the court is allowed to order a transfer to the other spouse if that spouse obtains release from the liens. The court is also allowed to authorize the purchase of the other spouse's interest on terms it sets, or to do both. Spouses are free to agree on their own terms instead.

The buyout has four parts. A value. A split. A lender who approves you. A written deadline.

Buyout equals equity times the leaving spouse's share. Equity is value minus mortgage balance.

Made-up numbers. Step by step:

Section 8-205 contains no 50/50 rule. Your agreement or the court sets the share. See what the split does to the number:

Every 5 points of share moves the buyout by $17,500. ($350,000 x 0.05) The split itself is a legal question. Section 8-205(b) lists the factors the court weighs. Ask your attorney how they apply to you.

Equity is not the only asset in a divorce. Some couples balance a buyout with other assets instead of cash. Your attorney and your tax professional set that up.

Only if a lender approves the loan on your income alone. The lender decides. Ask the lender what it needs from you before you fight for the house.

Made-up numbers. Keep the $600,000 home and the $175,000 buyout.

Ask a lender one question before you sign. Does my one income support $3,536 a month plus my other debts? The rate in this example is invented. Your rate and your lender's terms decide.

Do this before you sign. If the new loan fails, the buyout fails.

Often yes, if the loan follows the buyout rule in the Fannie Mae Selling Guide. The guide treats a buyout of one owner by another as a limited cash-out refinance when the conditions below are met. A limited cash-out refinance is not a cash-out refinance. This section explains the rule, the numbers, and where it breaks.

What a limited cash-out refinance is. Fannie Mae Selling Guide section B2-1.3-02 (version dated 10/08/2025) allows a limited cash-out refinance to provide cash back to the borrower or any other party in an amount that, in aggregate, does not exceed the greater of 1% of the new loan amount or $2,000. The loan is allowed to pay off the existing first mortgage and to finance closing costs, points, and prepaid items.

What the buyout rule says. Under the heading "Refinances to Buy Out An Owner's Interest," the guide says a transaction that requires one owner to buy out the interest of another owner, for example as a result of a divorce settlement, is considered a limited cash-out refinance if the property was jointly owned for at least 12 months before the new loan disburses.

Four conditions come with it:

The numbers. Made-up numbers. Keep the $600,000 home, the $250,000 mortgage, and the $175,000 buyout.

The loan pays the old mortgage and your spouse. You take no cash. That is the shape the rule describes.

Now change one thing. You decide to borrow $20,000 more for a new roof. The cash-back limit is the greater of 1% of the new loan or $2,000. One percent of $425,000 is $4,250. The greater of $4,250 and $2,000 is $4,250. Your $20,000 is above $4,250. The roof money pushes the loan outside the limited cash-out category. Ask your lender how it treats a loan like that.

The "greater of" matters on a small loan too. On a $150,000 loan, 1% is $1,500. The greater of $1,500 and $2,000 is $2,000.

Where a buyout turns into a cash-out refinance. Check these before you sign anything:

One more Selling Guide point helps spouses who did not hold title. The limited cash-out rule requires a borrower on the new loan to be an owner of record at application. It makes an exception when the lender documents that the borrower was legally awarded the property, such as through a divorce, separation, or dissolution of a domestic partnership. The cash-out refinance section, B2-1.3-03 (12/10/2025), applies a six-month title rule and waives it for inheritance and legal award.

How this fits Maryland law. Maryland Family Law Article section 8-205(a)(2)(iii) lets the court order a jointly owned principal residence transferred to the other spouse if that spouse obtains release from liens. It also lets the court authorize one spouse to buy the other's interest. A refinance in one name is a way to supply that release.

How to set it up:

What I did not verify. This rule is Fannie Mae's. A lender sets its own terms and often adds its own rules. Freddie Mac has a buyout program called a special purpose cash-out refinance in Guide section 4301.6. The official page was closed to my reading, so I state nothing about its terms. FHA loans follow HUD Handbook 4000.1, Section II.A.7.d. VA loans, USDA loans, jumbo loans, and portfolio loans each have their own rules. I did not verify those either. I also did not verify pricing, rates, fees, or loan-to-value limits for any of them. Ask your lender how your loan is classified and priced. This section is not a loan approval.

Use a licensed appraiser or two independent valuations. Agree on a tiebreak rule in writing before you order either one.

If you plan to refinance, ask the lender whether it accepts an appraisal you already have or orders its own.

Two tiebreak rules that work:

Two appraisals: $590,000 and $620,000.

Every $10,000 of value moves an even split buyout by $5,000. The appraisal is not a formality. It is the number everything else sits on.

A new loan has closing costs. Ask the lender for a loan estimate. Your agreement says who pays them.

Example only: loan costs of 2% on the $425,000 loan. $425,000 x 0.02 = $8,500. If the keeping spouse pays them in cash, that is $8,500 on top of the buyout.

Transfer and recordation taxes: ask your title company and your attorney whether any applies to your buyout and how much. Do not assume a number. Do not assume an exemption.

Income tax: IRS Topic no. 701 says you qualify to exclude up to $250,000 of gain from your income, or up to $500,000 if you file a joint return with your spouse, if you meet the tests. You must have owned the home at least 24 months of the last 5 years. For a joint return, one spouse must meet the ownership test and both must meet the use test. IRS Publication 523 adds that a spouse who owns the home still treats it as a residence while a former spouse lives there under a divorce or separation instrument. Run your numbers with your tax professional before you choose a buyout over a sale.

A buyout depends on funding. Funding fails. An income drops, an appraisal comes in low, or a lender says no.

Write the backup into the agreement:

Your attorney writes the terms.

Run both. Compare the net numbers. Nobody should pick based on pride.

I have seen this mistake before. A spouse wins the house and loses it later. The mortgage, taxes, insurance, and repairs fall on one income. This is where people usually get hurt.

If keeping the home does not work, here is how a divorce sale runs.

You should have your own. I am a real estate agent. I do not give legal advice, and I do not work for one spouse against the other.

I am not affiliated with any law firm. I do not recommend one attorney over another. Your spouse needs their own attorney, not yours.

If you need to find one, start with these bar association resources: