With 30-year fixed-rate mortgage rates now exceeding 6%, divorcing homeowners face significant challenges in refinancing their marital homes or purchasing new ones. The jump from a current interest rate at or below 4% to rates in the 7% range adds financial strain during an already difficult time. While no one wants to refinance at a higher rate, divorced homeowners often have no choice but to refinance to retain the marital home or buy a new one post-divorce.
Understanding the Impact of Rising Rates on Affordability Post-Divorce
Qualifying for a new mortgage becomes more complex, making Equity Buy-Out Pre-Approval a top priority.
Importance of Mortgage Pre-Approval
For years, obtaining mortgage pre-approval has been a crucial step for homebuyers. Pre-approval demonstrates to home sellers that the buyer has the financial strength to secure mortgage financing and complete the purchase. This practice should also be a priority for divorcing spouses before agreeing to refinance the marital home.
The Role of Equity Buy-Out Pre-Approval
Equity Buy-Out Pre-Approval is essential for the spouse retaining the marital home if new mortgage financing is required. For instance, a refinance incident to divorce is necessary to remove the vacating spouse from the current mortgage or when the in-spouse needs to buy the equity ownership from the out-spouse in cash form.
Benefits of Equity Buy-Out Pre-Approval:
- Comprehensive Financial Assessment: A Certified Divorce Lending Professional (CDLP® ) accounts for all income requirements, joint and individual debt, and assets needed to secure mortgage financing.
- Mitigates Risk of Home Sale: Prevents the necessity of selling the home if mortgage financing is unattainable for the in-spouse, as ordered in the divorce settlement.
- Prevents Litigation: Reduces the risk of returning to court due to failure to meet the divorce settlement agreement requirements.
- Provides Confidence: Ensures all parties that mortgage financing will be obtainable once the divorce is finalized, alleviating concerns of execution failure.
Prequalification vs. Pre-Approval
Prequalification involves a mortgage professional collecting basic financial information from the borrower to estimate how much of a mortgage they can afford.
Pre-Approval goes a step further by verifying the financial information provided, resulting in a more accurate loan amount. Thus, an Equity Buy-Out Pre-Approval offers a stronger indication of the borrowing spouse's financial capacity, enhancing the credibility of their lending strength.
Divorcing homeowners who obtained an equity buy-out pre-approval before the recent interest rate increases should secure an updated pre-approval to ensure their qualification status remains unchanged.
Value of a Certified Divorce Lending Professional (CDLP® )
A CDLP® brings immense value to the divorce team during the settlement process due to their comprehensive understanding of the entire divorce process. Their expertise spans family law, tax law, real estate, and mortgage financing, setting them apart from other mortgage professionals.
A successful divorce settlement involves aligning the pieces of the puzzle to ensure both spouses emerge whole. Every professional on the divorce team should add value and perspective, enhancing the overall outcome and success.
Contact a CDLP® Today
For guidance on credit, real estate, and mortgage financing after divorce, contact a CDLP® and request a copy of the Divorcing Your Mortgage Homeowner Workbook. This resource will help you organize, prepare, and understand your mortgage financing options, whether you need to refinance the marital home in an Equity Buy-Out situation or plan to sell and purchase a new home post-divorce.
As a divorce mortgage planner, the CDLP® can help divorcing homeowners make informed decisions regarding their home equity solutions while assisting the professional divorce team in identifying 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 set the stage for successful mortgage financing in the future.
Disclaimer: This information is for informational purposes only and not intended to provide legal or tax advice. Consult 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. The information in this newsletter is prepared by, or purchased from, an independent third party and distributed for consumer education purposes.
This is for informational purposes only and not to provide legal or tax advice. You should contact an attorney or tax professional to obtain legal and tax advice. Interest rates and fees are only estimates provided for informational purposes and are subject to market changes. This is not a commitment to lend. Rates change daily – call for current quotations.
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