One of the most critical decisions divorcing homeowners face is determining the fate of the marital home and other real property. Reaching an agreement on how to handle the mortgage and property can be challenging without proper guidance from a Certified Divorce Lending Professional (CDLP®).
Key Factors to Consider
Several factors influence the available options, including how the property was financed, current ownership, property disposition, equity amount, and income sources for the borrowing spouse.
Common Mistakes in Divorce Mortgage Planning
Many divorcing homeowners make costly mistakes when working with mortgage professionals who lack a thorough understanding of divorce implications. Two common mistakes are:
Mistake #1: Inappropriate Use of Cash-Out Refinances
A common recommendation is for the spouse keeping the house to apply for a cash-out refinance to pay the ex-spouse their share. This may involve a cash-out refinance followed by a home equity loan to cover the remaining amount.
Better Solution: A CDLP® can work with the divorce team to include specific verbiage in the marital settlement agreement, classifying the refinance as an Equity Buy-Out Rate and Term refinance. This allows access to more equity (typically capped at 80% loan-to-value for cash-out refinances) and often better financing terms. Title seasoning requirements for the borrowing spouse can also be identified and addressed by a CDLP®.
Mistake #2: Impact of Leaving the Vacating Spouse on the Mortgage
Another common issue is leaving the vacating spouse’s name on the existing mortgage, which can hinder their ability to qualify for future mortgage financing as the existing mortgage payment affects their debt-to-income ratio.
Better Solution: A CDLP® can ensure that the marital settlement agreement assigns the responsibility of paying the existing debt, classifying it as a Court-Ordered Assignment of Debt. This classification can allow the debt to be excluded from the borrower's debt-to-income ratio, facilitating qualification for a new mortgage in their name alone while remaining on the existing mortgage for the marital home.
Building the Right Divorce Team
Before making decisions about the marital home and mortgage financing, it is crucial to assemble a strong professional divorce team. This team should include a divorce attorney, financial planner, and a Certified Divorce Lending Professional (CDLP®).
The Value of a CDLP® in the Divorce Process
A Certified Divorce Lending Professional (CDLP®) brings substantial value to the divorce team during the settlement process. Their expertise in family law, financial and tax planning, real property, and mortgage financing enables them to support and assist the divorce team and divorcing homeowners effectively.
Contact a CDLP® Today
Working with a CDLP® and incorporating Divorce Mortgage Planning into the divorce settlement can help both spouses secure new mortgage financing post-divorce.
Contact a CDLP® today for a copy of the "Divorcing your Mortgage Homeowner Workbook," a comprehensive guide to credit, real estate, and mortgage financing after divorce. This workbook will help you get organized, 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.
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