Divorce Mortgage Planning for Veterans

According to the Veteran's Administration, veterans are over 60% more likely to experience separation or divorce compared to non-veterans. Various factors contribute to this statistic, including the stress of back-to-back deployments, reintegration into civilian life, and the difficulty non-veteran partners may have in relating to their veteran spouses.

Adding to the complexity, the coping skills veterans develop during active duty—such as "toughing it out"—are often not conducive to nurturing intimate relationships. To address these challenges, the VA offers the Warrior to Soulmate (W2SM) program, which helps veteran couples improve communication, resolve conflicts healthily, and deepen their emotional connection.

Challenges with the Marital Home in Divorce

When a marriage becomes unsalvageable, one significant area of conflict is the marital home. Common questions include who retains the home, what happens to the current mortgage, and how the vacating spouse secures new housing.

Key Concerns for Divorcing Veterans and the Marital Home

Retaining the Marital Home:
- When the non-veteran spouse retains the marital home, a common hurdle is the lack of equity, especially if the home was purchased or refinanced using a VA Home Loan Benefit, which typically allows for 100% loan-to-value financing. This often results in minimal equity growth unless there has been significant market appreciation.
Mortgage Refinancing Challenges:
- Non-veteran spouses are not eligible for new VA mortgage financing on their own. They may face challenges such as insufficient equity and less favorable mortgage terms compared to the existing VA financing. Two primary obstacles include:
  - Private Mortgage Insurance (PMI): Usually required when the mortgage exceeds 80% of the property's value.
  - Higher Interest Rates: VA loans often offer more favorable rates compared to conventional financing for the same loan amount.

Implications for the Veteran Spouse

For the veteran spouse who remains legally obligated on the existing VA mortgage, their VA Home Mortgage Entitlement remains tied to the current mortgage. This can limit their ability to secure a new VA home loan. Although eligible veterans can have two VA-financed homes concurrently, a down payment may be required for the second home, depending on their second-tier entitlement.

Understanding VA Loan Entitlement

Veterans have a primary entitlement of $36,000 and a second-tier entitlement of $101,062, totaling $137,062. The VA usually guarantees 25% of the loan amount. For instance, if the existing VA loan on the marital home is $300,000, $75,000 of the veteran's entitlement is tied to this mortgage. This leaves a second-tier entitlement of $26,062. If the veteran seeks a $350,000 loan for a new home, the VA will guarantee $87,500 (25%). With only $26,062 remaining entitlement, the veteran would need a $15,360 down payment, calculated as 25% of the difference between the guarantee and remaining entitlement.

Addressing Mortgage Obligations in the Divorce Settlement

The marital settlement agreement must clearly outline the court-ordered assignment of debt for the existing VA mortgage. If the non-veteran spouse is obligated to pay the existing mortgage, this can potentially exclude the veteran spouse's liability when applying for a new mortgage. Clear terms in the agreement should specify that the non-veteran spouse is responsible for the mortgage's principal, interest, taxes, and insurance.

The Role of a Certified Divorce Lending Professional (CDLP®)

Divorce mortgage planning for veterans involves understanding complex issues like VA home mortgage financing, entitlement, and court-ordered debt assignments. A Certified Divorce Lending Professional (CDLP®) can provide strategic planning and clarify these aspects, helping divorcing veterans and their spouses make informed decisions.

Benefits of Early Involvement of a CDLP®

Involving a CDLP® early in the divorce settlement process ensures a smoother transition and successful mortgage financing for divorcing homeowners. A CDLP® helps identify potential conflicts between the divorce settlement, home equity solutions, and real property issues.

Contact a Certified Divorce Lending Professional (CDLP®) today for a comprehensive analysis of your home equity and mortgage financing options during divorce.