|How divorce affects you in qualifying for a home mortgage
Getting a mortgage loan is challenging enough. But with strict underwriting, providing detailed explanations, sourcing of monies and debt ratios, adding a divorce into the mix makes things even more technical for the divorced borrower. The good news is despite most divorce circumstances, many can still successfully obtain financing.
The following is what to know and do when getting a mortgage amidst a divorce.
It begins with the loan application. Providing the most accurate and true information gives your mortgage company the full synopsis, so they can best structure your picture for a favorable credit decision. If you are previously divorced, you’ll fit into the unmarried box on the loan application.
What to plan for
Provide a copy of the divorce decree, all pages and all schedules because the lender will be looking for any other undisclosed/non-credit report obligations such as child support, alimony/spousal support paid or received.
• If you receive income in the form of child support or alimony, then this income can be used for qualifying, so long as there is a six-month history of the income being received, and the income is set to continue for the next three years, determined by child support or alimony agreement detailing the terms of the obligation for the party footing the debt.
• If you pay alimony or child support, this reduces borrowing ability as debts reduce income and income is needed to offset a mortgage payment.
• If you are divorced even as long as 20 years ago or more, there is no statute of limitations on mortgage credit scrutiny, the full divorce decree will be required no matter how many years you have been divorced.
• If you own a house and are on a mortgage with an ex-spouse, then as long as the divorce decree awards the other party with the home, and the other party is willing to provide support, they make the obligation by providing 12 months of bank statements and or cancelled checks, the total mortgage payment can be omitted.
• If you and your ex make the mortgage payment from the same joint bank account and the divorce decree awarded the other party with the property, you are both 50-50 responsible because the money becomes “co-mingled” funds. In such a scenario, there is not any way to support one person responsible for making the payment because it’s coming from a joint account.
• If the ex-spouse is responsible for making the mortgage that you are also obligated to pay, then explore the possibility of having the ex-spouse refinance you off the mortgage obligation.
• If an ex-spouse is refinancing you off a mortgage loan, then the lender could require a final closing statement called HUD you’re working with.
• If you have joint consumer obligations such as credit cards, installment loans, auto loans or even student loans, then unless it can be supported, the other party is responsible for the obligation, and the liabilities will be factored into your ability to qualify (same idea here –12 months of cancelled checks or bank statements to omit liability).
Here are some tips for consumers getting a mortgage who are not yet divorced. First and foremost, prior to being divorced, create a marital settlement agreement. This is a precursor to getting a divorce, which would greatly assist the mortgage lender in helping you obtain credit. Navigating around the financial questions that inevitably come up during a separation or divorce can easily be taken care of by having a clear delineation in writing on whose property is whose.
Consumers planning a divorce in the future would also stand to benefit by separating finances. This means having separate bank accounts and paying any obligations from these separate accounts. If you are trying to get a mortgage or will be trying to get a mortgage, you’d stand to benefit by having a conversation with a diligent mortgage professional upfront, who can navigate you around the complexities in the underwriting process when a divorce comes into the picture.
Scott Sheldon is a local mortgage lender, with over six years of experience helping people purchase and refinance primary residences, second homes and investment properties. Visit him at www.sonomacountymortgages.com.