Trying to obtain and structure a mortgage can be very frustrating for divorcing homeowners. But what makes it so different than when you got a mortgage the last time?
Have you ever asked the simple question, "What is the actual definition of divorce?" According to Merriam-Webster Dictionary, divorce is the action or an instance of legally dissolving or terminating a marriage or marital union.
Divorce laws vary considerably worldwide, but in most countries, divorce requires the sanction of a court or other authority in a legal process. In addition, divorce often involves issues of distribution of property, child custody, alimony (spousal support), child visitation/access, parenting time, child support, and the division of debt.
Divorce usually entails the canceling or reorganizing of the legal duties and responsibilities of marriage, thus dissolving the bonds of matrimony between a married couple under the rule of the particular country, state, or county.
The very definition of divorce may have a significant impact on your ability to obtain mortgage financing now and in the future. So, if you are planning to refinance the current mortgage on the marital home or purchase a new home once the divorce is final, seeking pre-divorce guidance from a Certified Divorce Lending Professional (CDLP™) can alleviate many future hurdles.
Canceling or reorganizing your legal duties and financial obligations may seem like just part of the settlement process; however, your complete financial picture often changes and so does your ability to secure financing for your home.
What’s your exit plan?
Will you be selling the marital home to rent or purchase new? Will one spouse be retaining the marital home and either become responsible for the existing mortgage payment or need to secure new mortgage financing to buy the equity ownership share from the other spouse?
Pre-Divorce Mortgage Planning
It might seem odd, but getting pre-divorce mortgage planning is a practical step to take when you know your marriage is ending. By thinking ahead, you can take steps to ease the transition for you, your spouse, and your children.
Are you selling the marital home and splitting the net proceeds? The next obvious question is, where will you and your spouse live? Going from a two-income family to one source of income may not only put a strain on your purchase power, but various aspects of the divorce settlement agreement may have a severe impact as well.
Are you retaining the marital home and refinancing to buy the equity share from your former spouse? Again, not overlooking the financial constraints of divorce, but the details of the property may impact the ability to obtain mortgage financing.
Often in a divorce, we are more focused on curing the problem at hand, i.e., distributing real property and assets, we forget there is life after divorce. The biggest challenge is the lack of knowledge, understanding, and preparedness of how the various pieces of the divorce puzzle fit together and indeed overlap.
Divorce Mortgage Planning is a holistic approach to evaluating mortgage options in the context of the overall financial objectives as they relate to divorcing situations. Working directly with the divorce team, a CDLP™ understands the intersection of divorce, financial and tax planning, real property, and mortgage planning. The role of the CDLP™ is to help integrate the mortgage selected into the overall long and short-term financial and investment goals to help minimize taxes, minimize interest expense, and maximize cash flow.
Since 2014, Certified Divorce Lending Professionals (CDLP™) with the Divorce Lending Association have been helping divorcing homeowners make more informed decisions regarding their home equity solutions. Divorce Mortgage Planning is a holistic approach to evaluating mortgage options in the overall financial objectives related to divorce situations.
What does holistic mean?
A holistic approach means:
- Looking at something as a whole interconnected entity.
- Understanding the bigger picture.
- Not only thinking outside the box but removing the box altogether.
Only about 70% of what a Certified Divorce Lending Professional (CDLP™) does involves the actual mortgage; the remaining 30% is split between working with the divorce team on the divorce settlement process, financial and tax planning, and the real property itself.
For example, the verbiage in the divorce settlement agreement (or the structure of support income or the division of assets) and specific aspects of the real property can directly impact the ability to obtain mortgage financing. For the spouse who may be exiting the marital home and choosing to purchase a new house, when the existing mortgage will NOT be refinanced, the correct verbiage in the divorce settlement agreement can put you in a stronger borrowing position. For the spouse who is retaining the marital home and needs to refinance the current mortgage, how long you have been on title to the real property may affect what type of mortgage financing is available for you.
Who you work with and what they bring to the table will affect your success. Working with a Certified Divorce Lending Professional (CDLP™) during pre-divorce mortgage planning may help both spouses obtain new mortgage financing post-divorce.
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 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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