Have you had this happen in one of your divorce cases before?
John is 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. However, John is concerned about the payment history on the current mortgage since he is still liable. Therefore, as part of the marital settlement, John will pay the mortgage directly and pay Jane the net difference of Maintenance less the mortgage payment until she can refinance the existing mortgage. Sounds reasonable, right?
Unfortunately, this creates a vicious circle for Jane qualifying for the new refinance. Why?
In the mortgage world, we must establish consistency and stability to use separate Maintenance (or alimony, spousal support, etc.). Therefore, the payment history of separate Maintenance is required to determine its suitability as a stable qualifying income. Full, regular, and timely payments must have been received for six months or longer to be considered stable income. In addition, if full or partial payments are made on an inconsistent or sporadic basis, the income is not acceptable for qualifying the borrower.
So what happens when John makes the mortgage payment directly and pays Jane the net difference in separate Maintenance? She is not receiving full, regular, and timely payments. Until John begins paying Jane the full $6,000 in separate Maintenance, Jane will not be able to use this income as qualifying income for refinancing the existing mortgage.
As a Certified Divorce Lending Professional (CDLP®), we see all types of arrangements for making support payments. One would think that as long as the two spouses involved are satisfied with the payment arrangements, that should suffice, right? Unfortunately, it doesn’t work that way.
Another common issue with support payments is when the paying spouse transfers the support payment to a jointly held account or maybe the ‘net’ out of any shared expenses from the full support payment for the previous month. Although perhaps ultimately agreed to by the receiving spouse, both of these methods cause problems.
100% of the income deposited into a joint checking account cannot be used for qualifying income, because you can’t pay yourself support. The same goes for the ‘netting’ out of shared expenses. So again, 100% of the income may not be used because it does not demonstrate consistent and stable payments.
Incorporating divorce mortgage planning into your divorce case management and process can help set the proper expectations for both spouses and help alleviate any issues or concerns when either spouse wants to obtain mortgage financing.
How are you incorporating divorce mortgage planning into your case management?
As a divorce mortgage planner, the CDLP® can help divorcing homeowners make a more informed decision regarding their home equity solutions while helping the professional divorce team identify any potential conflicts between the divorce settlement, home equity solutions, and real property issues.
Involving a Certified Divorce Lending Professional (CDLP®) early in the divorce settlement process can help the divorcing homeowners set the stage for successful mortgage financing in the future.
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.
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