When divorcing couples decide to separate, one of the biggest challenges is handling the marital home. The complexity of refinancing or purchasing a new home during a divorce is often underestimated. Traditional mortgage processes don’t typically account for the unique financial situations divorcing homeowners face.
Understanding the Complications
Divorce, or dissolution of marriage, involves reorganizing the legal responsibilities and financial duties between spouses. This often means shifting from a dual-income household to a single-income situation, which can significantly impact both parties' financial stability.
For many, the increased difficulty comes from needing to use spousal support as income for mortgage qualification or managing the responsibility of paying support, which affects the paying spouse’s qualified income for mortgage approval. This is where a knowledgeable divorce mortgage planner can be invaluable.
Using Support Income for Mortgage Qualification
When a spouse needs to use spousal or child support income for mortgage purposes, they must document six months of receipt and ensure that the income will continue for at least three years. Consistency and stability of payments are crucial, including how the payments are made. These requirements must be met whether the goal is to refinance the marital home or purchase a new one.
Benefits of an Equity Buy-Out Preapproval
Obtaining an Equity Buy-Out preapproval from a knowledgeable divorce mortgage planner can streamline the settlement process and prevent issues after the decree is finalized.
The spouse paying support also benefits from working with a qualified divorce mortgage planner. Proper classification of the support obligation during the mortgage process can significantly impact the mortgage amount for which the divorcing homeowner may qualify.
Managing Existing Mortgage Debt
If the existing mortgage on the marital home is not refinanced and the vacating spouse wants to purchase a new home, the mortgage debt must be addressed in the settlement agreement. The agreement should specify which spouse is responsible for the mortgage, including principal, interest, taxes, and insurance. Properly addressing this can prevent the existing mortgage payment from being counted as a liability, thus increasing the vacating spouse’s purchasing power.
Role of a Certified Divorce Lending Professional (CDLP®)
A CDLP® can identify sources of qualified income to help the retaining spouse qualify for an equity buy-out refinance or develop a plan for future mortgage financing. They can also help the vacating spouse purchase a new home by ensuring the settlement agreement correctly addresses existing debts.
Achieving a Successful Divorce Settlement
Effective communication and strategic negotiation are key to a successful divorce settlement. Incorporating divorce mortgage planning with a CDLP® ensures that both parties come out whole or are at least on the road to recovery. The CDLP® helps divorcing homeowners make informed decisions about home equity solutions, addressing potential conflicts between the divorce settlement and real property issues.
The Value of Divorce Mortgage Planning
Divorce Mortgage Planning is a holistic approach to evaluating mortgage options within the context of the overall financial objectives related to divorce. A CDLP® works directly with the divorce team, understanding the intersection of divorce, tax, real estate, and mortgage financing. Their role is to integrate the selected mortgage into the long and short-term financial goals, minimizing taxes, interest expenses, and maximizing cash flow.
Early Involvement is Crucial
Involving a Certified Divorce Lending Professional (CDLP®) early in the divorce settlement process sets 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.
Copyright 2021—All Rights Divorce Lending Association
