The last thing a divorcing homeowner wants to deal with is the headache of jumping through hoops to refinance the marital home or purchasing a new home with a mortgage lender who doesn’t understand the severity of the situation. Unfortunately, you can’t think traditionally when obtaining mortgage financing during and after divorce.
Why does divorce complicate the mortgage approval process? Divorce, also known as dissolution of marriage, is the process of terminating a marriage or marital union. 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 law of the particular country or state.
In the majority of times, the entire financial picture has changed for both divorcing homeowners. Going from a double-income household to a single-income household can become a financial burden on its own. Whether the increased frustration results from needing spousal support as income for mortgage qualification or the responsibility of paying support takes a hit on the paying spouse’s qualified income required for mortgage approval, working with a knowledgeable divorce mortgage planner can make all the difference.
When using spousal or child support income for mortgage qualifying purposes, the borrowing spouse must document six (6) months of proof of receipt on average and three (3) years of continuance before they can include that income for mortgage approval. Unfortunately, proof of receipt isn’t the only requirement for using support income for qualified income. Consistency and stability of the payments received are equally as important, including how the payments are made from one party to the other. Therefore, it’s essential to keep these critical requirements in mind when there is a specified timeframe for obtaining mortgage financing, whether refinancing the marital home for an equity buy-out or getting a mortgage for purchasing a new home.
Obtaining an Equity Buy-Out preapproval from a knowledgeable divorce mortgage planning will prove to be a smart move during the settlement process rather than dealing with the aftermath post-decree.
The spouse required to pay monthly support would also benefit from working with a qualified divorce mortgage planner. How the support obligation is classified during the mortgage process can significantly impact the amount of mortgage the divorcing homeowner may qualify for if not handled appropriately by the mortgage professional.
What if the mortgage on the marital home is not being refinanced, and the vacating spouse wants to purchase a new home? The existing mortgage debt must be addressed in the settlement agreement in order for the obligation to be recognized as a court-ordered assignment of debt. The verbiage in the settlement agreement needs to address which spouse will be responsible for paying the existing mortgage obligation, including principal, interest, taxes, and insurance. When the existing mortgage obligation is managed correctly, the monthly payment may no longer need to be included as a current liability for the borrowing spouse, thus increasing their purchase price range. The existing mortgage obligation on the marital home often leads to conflict; however, if the obligation is addressed correctly, the fear of having to sell the real property or not purchasing a new home because of the existing debt may be removed.
Divorce doesn’t need to complicate the mortgage process for either spouse. However, implementing divorce mortgage planning into the settlement process can help identify possible solutions and assist both spouses in letting go of counterproductive positions and emotions while taking stock of possibilities, resources, and solutions.
- A Certified Divorce Lending Professional (CDLP™) can help identify sources of qualified income that may help the retaining spouse either qualify for an equity buy-out refinance now or at least develop a mutually acceptable plan to obtain mortgage financing in the future.
- A Certified Divorce Lending Professional (CDLP™) can help identify opportunities and solutions for the vacating spouse to purchase a new home while still on the note to the marital home. For example, making sure there is a court-ordered assignment of debt and sufficient verbiage in the marital settlement agreement or Memorandum of Understanding omitting the existing debt from their debt load on the new purchase mortgage.
A successful divorce settlement results from effective communication and strategic negotiations in such a manner that both divorcing parties come out whole or at least on the road to recovery. Working together as a team and incorporating divorce mortgage planning into the settlement cycle with a Certified Divorce Lending Professional will ultimately result in a better solution and better outcome for the divorcing couple.
As a divorce mortgage planner, the CDLP™ can help divorcing homeowners 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 as well as real property issues.
Divorce Mortgage Planning is a holistic approach to the process of 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, tax, real estate, and mortgage financing. 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, to minimize interest expense, and maximize cash flow.
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 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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