According to the Veteran's Administration, veterans are more than 60% more likely to separate or divorce than non-veterans. There are many different reasons Veteran couples have more marital difficulties than non-Veterans. There are stressors like back-to-back deployments while one or both spouses are on active duty. Or they are reintegrating into the flow of everyday life after deployments or upon leaving the service. Or a non-Veteran partner being unable to relate to their veteran, and vice versa. Are all possible causes of strife.
Adding to the problem, the coping skills Veterans learn on active duty are very different from those better suited to intimate relationships: "Toughing it out" versus sharing feelings and exchanging ideas rather than giving orders.
VA is doing something to help Veterans and their loved ones combat these challenges. The Warrior to Soulmate (W2SM) program helps these couples improve communication. They learn healthy conflict resolution skills, expand their emotional awareness of each other and deepen their connection and intimacy. (https://blogs.va.gov/VAntage/70144/vas-warrior-soulmate-w2sm-program/ )
When the marriage is unsalvageable, one area of strife becomes the marital home. Questions arise about who retains the marital home, what to do with the current mortgage, and how the spouse vacating the marital home obtains new housing?
Let's address two of the most common concerns with the marital home and divorcing veterans.
When the non-veteran spouse retains the marital home, there is usually a common hurdle to overcome: the lack of equity. This hurdle is expected because the house was most likely purchased or recently refinanced utilizing the VA Home Loan Benefit. In addition, VA Home Loan Benefits typically allow for 100% loan to value financing, meaning there is not usually a down payment required to obtain VA mortgage financing. Therefore, the only equity growth in the real property depends upon the current market and appreciation during homeownership.
Non-veteran spouses are not eligible to obtain new VA mortgage financing on their own. VA home financing is a benefit that belongs to the eligible veteran. So, when the non-veteran spouse is required to refinance the existing home financing into their names once the divorce is final, they will most likely face challenges of insufficient equity. Not to mention that financing terms may not be as favorable as the existing terms offered with the current VA financing.
Two obstacles the non-veteran spouse may face include:
- The added expense of Private Mortgage Insurance (PMI). PMI is usually required on conventional mortgage financing when the primary mortgage exceeds 80% of the current loan to the value of the real property.
- Less favorable mortgage interest rates. VA home mortgage financing usually offers advantageous interest rates regardless of the high loan to value ratios compared to conventional mortgage financing with the same loan amount leveraged.
Unfortunately, when the non-veteran spouse faces these two challenges, they may realize they cannot refinance the current mortgage and remove the veteran spouse from the legal obligation of the existing VA home mortgage financing.
Not only will the veteran spouse remain legally obligated for the payment of the current mortgage, but they may also be limited on their ability to obtain VA home mortgage financing to secure a new home for themselves.
For the Veteran Spouse whose name will remain on the mortgage of the marital home financed with VA home mortgage financing, their VA Home Mortgage Entitlement remains tied to the existing mortgage even though the marital settlement agreement may have awarded the house and assigned the mortgage obligation to the non-veteran spouse.
Although the Veteran's Administration allows an eligible veteran to have two VA financed homes concurrently, the veteran may be required to put a down payment on the secondary home depending on their second-tier entitlement. There are two tiers of VA loan entitlement, a basic level and a second-tier of entitlement. It is up to the mortgage company how much they are willing to lend to the veteran borrower and how much of a down payment will be required.
Eligible veterans in most areas of the United States have a primary entitlement of $36,000 and a second-tier entitlement of $101,062 for a total entitlement amount of $137,062. The Veteran's Administration usually guarantees an amount equal to 25% of the mortgage loan amount. For example, if the existing VA loan amount on the marital home is $300,000, $75,000 of the veteran's entitlement is tied to this mortgage. Therefore, there would be a second-tier entitlement remaining of $26,062. However, when the veteran spouse attempts to obtain new VA home mortgage financing to purchase a new home with a loan amount of $350,000, the VA will guarantee $87,500 (25%). Because the veteran spouse's remaining entitlement is only $26,062, they would be required to have a down payment of $15,360. Therefore, the Veteran's Administration would need the veteran to make a down payment of 25% of the difference between the guarantee and their remaining entitlement.
Once the veteran's remaining entitlement is determined, another concern that needs to be addressed in the marital settlement agreement is the court-ordered assignment of debt of the existing VA home mortgage on the marital home. Because the veteran remains legally obligated to pay the existing mortgage not refinanced by the non-veteran spouse, it may be a financial challenge to qualify for a second home mortgage unless the non-veteran spouse becomes obligated to pay the existing mortgage. In this case, the marital settlement agreement needs to be very clear. The non-veteran spouse will be required to pay the existing mortgage's monthly obligation, including principal, interest, taxes, and insurance. However, when the marital settlement agreement specifically makes the non-veteran spouse obligated to pay the existing mortgage, the current monthly obligation may be omitted from the veteran spouse's debts when obtaining new VA home mortgage financing.
Veteran Home Mortgage financing, 1st and 2nd tier entitlements, court-ordered assignment of debts – can become very complicated during the divorce. A Certified Divorce Lending Professional can help clarify and offer strategic divorce mortgage planning to divorcing veterans and their spouses.
As a divorce mortgage planner, the CDLP™ can help divorcing veterans 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 in the future.
This article 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 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.
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