A successful divorce settlement involves piecing together a complex puzzle to ensure both parties emerge whole or on the road to recovery. But how do you get there?
Addressing Divorce and Mortgage Financing Concerns
Divorce and mortgage financing concerns often become sensitive topics, especially when one spouse relies on income awarded from the divorce for mortgage qualification and when contingent liabilities, such as a jointly held mortgage, are present.
Understanding the Various Aspects of Divorce
Understanding how lenders view different aspects of divorce can significantly impact the success of the divorce settlement, particularly when real estate and the marital home are central issues. Working with a Certified Divorce Lending Professional (CDLP®) is crucial to address these concerns effectively.
Key Factors in Divorce and Mortgage Financing:
1. Timing of Filing the Divorce Petition
When a divorce petition is filed, most mortgage lenders require either a temporary settlement agreement or a finalized divorce settlement agreement ordered by the court to complete and close a new mortgage application or loan.
2. Documentation Requirements
Every divorce situation is unique, and the documentation needed for mortgage financing will vary. Providing the necessary information can help diffuse some negative emotions during this emotional and private time.
3. Qualified Income and the 6/36 Rule
There is a significant difference between what is considered income and what qualifies as 'qualified income.' In divorce situations, income from maintenance, child support, and property settlement notes must meet specific requirements to be considered qualified for mortgage financing.
To use maintenance and/or child support as income, it must meet the '6/36' rule:
- Documented receipt of income for the previous 6 consecutive months.
- 36 months of future payments must remain at the time of the mortgage application.
4. Contingent Liability
When both parties are jointly obligated for a debt, but the court orders one party responsible for the payment, it is considered a "Contingent Liability." Even though the court orders one party responsible, neither party is released from the overall obligation to the creditor.
In divorce situations, the most common instance is with current mortgage financing. If the court orders one party responsible for the mortgage payment on the marital home, the current mortgage debt is considered a contingent liability and is NOT counted in the debt-to-income ratio for the other party seeking new mortgage financing.
Why Involve a CDLP® for a Successful Divorce Settlement?
Do you have questions about how divorce impacts mortgage financing? The expertise of a Certified Divorce Lending Professional (CDLP®) can make the transition smoother and more successful for all parties involved.
Benefits of Working with a CDLP®:
- Expert knowledge of how divorce affects mortgage financing.
- Assistance in navigating the complexities of divorce-related mortgage issues.
- Support for both the divorce team and the divorcing homeowners.
Always Work with a Certified Divorce Lending Professional (CDLP®)
When dealing with divorce and real estate or mortgage financing, always work with a Certified Divorce Lending Professional (CDLP®). Their expertise ensures a smooth and successful transition during the divorce process.
This is for informational purposes only and not for the purpose of providing legal or tax advice. You should contact an attorney or tax professional to obtain legal and tax advice. Interest rates and fees are estimates provided for informational purposes only and are subject to market changes. This is not a commitment to lend. Rates change daily – call for current quotations.
Copyright 2021 Divorce Lending Association. No portion of this post may be reproduced without the written consent of the Divorce Lending Association.
