Divorce Mortgage Planning and Higher Mortgage Interest Rates CDLP

With mortgage rates on 30-year, fixed-rate loans rising over 6%, the cost of mortgages is significantly higher, making it more difficult for divorcing homeowners to refinance their marital home or buy a new one.

Divorcing homeowners who are now faced with refinancing their current mortgage most likely have a current interest rate at or below 4%. However, due to the recent increases, they are looking at interest rates in the 7% range. In a normal situation, nobody wants to refinance from a great rate to a higher one. On the other hand, divorced homeowners may have little choice but to refinance to retain the marital home or buy a new home post-divorce.

What is the real impact of rising rates, and how is it affecting affordability post-divorce?

Qualifying for a new mortgage may be more complex, and an Equity Buy-Out Pre-Approval should be a top priority.

 

Obtaining mortgage pre-approval to purchase a new home has been common practice for many years. A pre-approval shows the home seller that the buyer has the financial strength to obtain mortgage financing to complete the purchase transaction successfully. The mortgage purchase pre-approval is one of the first steps for homebuyers, and it should be one of the first steps for a divorcing spouse before agreeing to refinance the marital home.

Equity Buy-out Pre-approval should also be required by the spouse retaining the marital home if new mortgage financing is required. For example, a refinance incident to divorce is required 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.

  1. An Equity Buy-out Pre-approval allows the Certified Divorce Lending Professional (CDLP™) to account for all income requirements, joint and individual debt, and assets needed to provide mortgage financing successfully.
  2. An Equity Buy-out Pre-approval can eliminate the fear of selling the home should mortgage financing not be obtainable by the in-spouse if ordered in the divorce settlement agreement.
  3. An Equity Buy-out Pre-approval can prevent the need to return to litigation due to the inability to fulfill the requirements of the divorce settlement agreement.
  4. An Equity Buy-out Preapproval will provide all parties with confidence that there will be no issues obtaining mortgage financing once the divorce is final and alleviate any concerns of failure to execute.

What's the Difference Between a Prequalification and Preapproval?

A prequalification generally means that a mortgage professional collects basic financing information from the borrower to estimate how much of a mortgage they can afford. A pre-approval takes it one step further by verifying the financial information you submit to get a more accurate amount. This means that an Equity Buy-out Pre-approval is a more vital sign of what the borrowing spouse can afford and adds more credibility to the lending strength of the borrower.

Divorcing homeowners who obtained an equity buy-out pre-approval prior to the change in interest rates are advised to obtain an updated pre-approval ensuring their ability to qualify for mortgage financing hasn't changed.

The CDLP™ brings tremendous value to the divorce team during the settlement process because of their stronger perspective of the entire divorce process. In addition, their understanding of the intersection of family law, tax law, real estate, and mortgage financing truly separates them from other mortgage professionals in the industry. 

A successful divorce settlement is a result of putting the pieces of the puzzle together so that both divorcing spouses come out of the divorce whole. Therefore, each member of the professional divorce team should bring value and perspective that benefits the overall outcome and success.

Contact a CDLP™ today for a copy of a Divorcing your Mortgage Homeowner Workbook, a guide to credit, real estate, and mortgage financing after divorce. This workbook will help you organize, be prepared, and understand your mortgage financing position, whether you need to refinance the marital home in an Equity Buy-Out situation or prepare to sell and purchase a new home post-divorce.

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. 

 

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. 

Copyright 2022—All Rights Divorce Lending Association

 

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