One of the biggest decisions divorcing homeowners face is what to do with the marital home and real property. Trying to agree on how to handle the mortgage and the home can be a challenge without proper direction from a Certified Divorce Lending Professional (CDLP™).
The options available depend on a number of factors, such as how the property was financed and how ownership is currently held. Additional factors to take into consideration include the disposition of property, the amount of equity available in the property, and the income sources available for the borrowing spouse.
There are many common mistakes made during divorce when working with a mortgage professional who does not fully understand the implications of divorce and the opportunities to help the divorcing homeowners with their mortgage financing. Two of the more common mistakes made are as follows:
Mistake #1 - "If the couple has equity in the home, the spouse keeping the house should apply for a cash-out refinance to pay their ex-spouse their share. It may mean doing a cash-out refinance first to get part of the money to the exiting spouse, then following that up with a home equity loan to get the remaining money due to the exiting spouse."
Mortgage Underwriting Guidelines allow for a better solution. When a CDLP™ works with the divorce team and the divorcing couple, specific verbiage can be used in the marital settlement agreement which will classify the refinance as an Equity Buy-Out Rate and Term refinance. The benefit is access to more equity in the home which is usually capped at 80% loan to value with cash-out refinances. Better financing terms are usually available in this situation as well. There may be title seasoning requirements for the borrowing spouse; however, the CDLP™ can identify this concern when vetting the marital home.
Mistake #2 - "Leaving the vacating spouse's name on the existing mortgage will affect the ability of the non-resident spouse to qualify for future mortgage financing because the existing mortgage payment will be included in the spouse's debt-to-income ratio if they remain on the current mortgage."
Again, working with a CDLP™ may change the game here as well. When the marital settlement agreement assigns the responsibility of paying an existing debt, the debt is classified as a Court-Ordered Assignment of Debt. For mortgage financing requirements, this may allow for the debt to be omitted from the borrower's debt-to-income ratio helping them to qualify for a new mortgage in their name only while remaining on the existing mortgage to the marital home.
Before making any decisions regarding the marital home and mortgage financing opportunities, you are encouraged to build the right team. A strong professional divorce team will include players such as the divorce attorney, financial planner, and a Certified Divorce Lending Professional (CDLP™).
Do you have questions about how divorce may impact your ability to obtain mortgage financing? A Certified Divorce Lending Professional's (CDLP™) knowledge and experience can help make the transition much smoother and more successful for all parties involved.
The CDLP™ brings tremendous value to the divorce team during the settlement process. Their background knowledge of family law, financial and tax planning, real property, and mortgage financing allows them to better support and assist the divorce team and divorcing homeowners.
Working with a Certified Divorce Lending Professional (CDLP™) and incorporating Divorce Mortgage Planning into the divorce settlement may help both spouses obtain new mortgage financing post-divorce.
Contact a CDLP™ today for a copy of the Divorcing your Mortgage Homeowner Workbook, a guide to credit, real estate, and mortgage financing after divorce. This workbook will help you get organized, be prepared, and understand your mortgage financing position whether you are needing to refinance the marital home in an Equity Buy-Out situation or prepare to sell and purchase a new home post-divorce.
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. The information contained in this newsletter has been prepared by, or purchased from, an independent third party and is distributed for consumer education purposes.
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