Even with the best intentions, certain decisions can lead to significant challenges, especially in divorce cases. Consider this scenario:
Common Issue in Divorce Cases
John is required to pay Jane $6,000 in separate maintenance each month. Jane will retain the marital home and must refinance the existing mortgage within one year of the final divorce. To ensure the mortgage payment history remains positive, John pays the mortgage directly and then pays Jane the net difference of the maintenance minus the mortgage payment. This arrangement sounds reasonable, but it can create complications for Jane when qualifying for a new refinance.
The Problem with Direct Mortgage Payments
In the mortgage industry, consistency and stability of income are crucial for qualifying purposes. Separate maintenance (or alimony, spousal support, etc.) must show a history of full, regular, and timely payments for six months or longer to be considered stable income. If payments are inconsistent or partial, they are not acceptable for qualifying the borrower.
When John pays the mortgage directly and then gives Jane the remaining amount of separate maintenance, Jane does not receive full, regular, and timely payments. This inconsistency means she cannot use this income to qualify for refinancing the existing mortgage until John starts paying the full $6,000 directly to her.
Other Common Support Payment Issues
Another common issue arises when the paying spouse deposits the support payment into a jointly held account or nets out shared expenses from the full support payment. While these methods may be agreed upon by both parties, they create problems for mortgage qualification:
- Joint Account Deposits: 100% of the income deposited into a joint checking account cannot be used for qualifying income because you can't pay yourself support.
- Netting Out Expenses: Similar issues arise when shared expenses are netted out of the support payment, leading to inconsistent and unstable payment records.
The Solution: Divorce Mortgage Planning
Incorporating divorce mortgage planning into your case management can set proper expectations for both spouses and help alleviate issues when either spouse needs to obtain mortgage financing.
How to Incorporate Divorce Mortgage Planning
As a Certified Divorce Lending Professional (CDLP®), a divorce mortgage planner can assist divorcing homeowners in making informed decisions about their home equity solutions. They also help the professional divorce team identify potential conflicts between the divorce settlement, home equity solutions, and real property issues.
Benefits of Early Involvement
Involving a Certified Divorce Lending Professional (CDLP®) early in the divorce settlement process can help set the stage for successful mortgage financing in the future.
Disclaimer
This information is for educational purposes only and not intended to provide legal or tax advice. Consult with an attorney or tax professional for legal and tax advice. Interest rates and fees are estimates for informational purposes only and subject to market changes. This is not a commitment to lend. Rates change daily – call for current quotations.
Copyright 2023 Divorce Lending Association. No portion of this post may be reproduced without the written consent of the Divorce Lending Association.
