So, what now? You were awarded the marital home in the divorce but you’re not a borrower on the existing mortgage. How do you work with the Mortgage Holder going forward?
If you were awarded the marital home during divorce and will be refinancing the current mortgage into your name or if you will be keeping the existing mortgage as is - if you are not a current mortgagee (borrower) on the existing loan there are a couple of things to keep in mind.
When refinancing a mortgage into your name and you are not a current mortgagee, is not typically a problem. Whether your name is currently on the title to the home and if so for how long or your name is currently not on the title to the home may impact the type of mortgage you will be able to obtain. It is highly recommended that you speak with a divorce mortgage planning professional to determine your eligibility.
If the plan is to retain the existing mortgage as-is and you are not currently a mortgagee on the mortgage there...
One of the biggest financial (and emotional) decisions to be made during a divorce is deciding what happens to the marital home. Deciding what to do with the home during divorce might not be as simple as who keeps the property and who moves out.
If the divorcing couple is mediating the disposition of the marital home, the goal is to close the gap in the negotiation and ultimately come to a solution that works for both parties. This may be easier said than done when emotions, finances, and even children are involved.
From a financial perspective, there are usually two options on the table:
Option 1: Sell the marital home and split the proceeds.
Option 2: One spouse retains the property and compensates the other spouse for their share of equity ownership.
The second option can be achieved in various ways; however, the two most common are:
"Nothing matters more in winning than getting the right people on the field. All the clever strategies and advanced technologies in the world are nowhere near as effective without great people to put them to work." Jack Welch, Winning
Many times in a divorce, we are more focused on curing the problem at hand, i.e., distributing real property and assets, that 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.
One of the primary keys to a successful divorce is understanding the various puzzle pieces of a divorce involving real property as well as assembling your professional divorce team. The intersection of family law, financial and tax planning, real property, and mortgage planning is real.
It takes teamwork to bring the typical divorce settlement together. There are usually quite a few people involved from divorcing clients,...
Alimony is the payment of money by one spouse to the other after separation or divorce. Its purpose is to help the lower-earning spouse cover expenses and maintain the same standard of living after divorce.
Alimony is often considered the more legal term for payments made to an ex-spouse following a divorce. These payments may also be called maintenance payments, spousal support, or support payments.
So, from one perspective, there is no 'real' difference between alimony, maintenance, and spousal support. While from a mortgage lending perspective, this isn't always the case.
For example, John earns a monthly gross salary of $8,000 and pays spousal support each month of $2,000. When obtaining mortgage financing, the monthly obligation of $2,000 is usually considered a liability and has a hard hit on John's monthly income. However, the majority of agencies (Fannie Mae, Freddie Mac, FHA) may allow the $2,000 in monthly support to be reduced from the monthly gross income.
A professional divorce team has a range of team players including the attorney, financial planner, accountant, appraiser, mediator and yes, a divorce lending professional. Every team member has a significant role ensuring the divorcing client is set to succeed post decree.
Diverse skills allow the divorce team to think about a specific problem in a different, and often more strategic, way. By being able to look at a problem from different angels and draw on a wealth of experience and knowledge from all team members, allows for innovative and creative solutions.
1 – Diverse Teams Fill In The Knowledge Gap | The reality is that no one knows everything. Teams solve problems faster when they’re more cognitively diverse.
2 – Diverse Teams Fill In the Perspective Gap | Perspective is the capacity to view or think about a situation or problem in a wise and reasonable way.
3 – Diverse Teams Fill In the Experience Gap | Experience mostly comes through time, but...
So, what now? You were awarded the marital home in the divorce but you’re not currently on the mortgage. How do you work with the Mortgage Holder going forward?
Assumption & Release of Liability | When a former spouse assumes ownership of the home and the mortgage, this does not always mean the mortgage lender will release the original borrower from their financial obligation or liability on the mortgage. A loan assumption is a transaction in which a person (the “assumptor”) obtains an ownership interest in real property from another person and accepts responsibility for the terms, payments ,and obligations of that other person’s mortgage loan. The assumptor is liable for the outstanding obligations and unless a release of liability is requested, the original borrower will remain liable as well.
Successor Homeowner’s Right to Information | Another sticking point for divorcing spouses who are awarded ownership of the marital home and who...
Avoiding Language Traps in Divorce Settlement Agreements That Could Affect Your Ability to Obtain Mortgage Financing.
We know it is important to be very mindful of the words used in a divorce settlement agreement in order to avoid any language traps and future conflict. Word choice can have an effect on the divorcing client’s ability to obtain mortgage financing as well. While it may not be top of mind to word the divorce settlement agreement to meet mortgage guidelines, it could significantly help divorcing clients to clarify certain terminology used in the settlement agreement.
The terms “alimony”, “maintenance” and “spousal support” are often used interchangeably to describe payments made by one spouse to another after a divorce. The terms may be identical in meaning but not necessarily in the eyes of an underwriter.
As an example: From a liability/debt perspective, FHA guidelines differentiate between alimony and maintenance while...
Under today’s economic conditions, especially with the job losses we’ve seen lately, many lenders and investors are choosing to raise minimum credit score requirements in an effort to minimize the risk of borrowers not being able to make their payments.
For now, the change in credit score requirements is simply a protection against default during a rough time in our economy. It’s uncertain as to how long the increased credit score requirements will last. But many of the big benefits of each loan program remain, while interest rates are still sitting at historic low levels.
Not only can divorce lead to emotional strain, but it can also cause all sorts of financial problems. All those shared accounts and co-signed loans that once seemed like a great idea are now the cause of major issues.
Don’t assume your clients will play nice and don’t assume they fully understand what happens with their credit during the divorce process. When joint credit is obtained,...
Obtaining mortgage preapproval to purchase a new home has been common practice for many years. A preapproval shows the home seller that the buyer has the financial strength to obtain mortgage financing to successfully complete the purchase transaction. The mortgage purchase preapproval is one of the first steps required for homebuyers and it should be one of the first steps for a divorcing spouse before agreeing to refinance the marital home.
Equity Buyout Preapproval should also be required by the spouse retaining the marital home if new mortgage financing is required. A refinance due to a divorce is required to remove the vacating spouse from the current mortgage or when the in-spouse needs to buy the equity ownership from the out-spouse in cash form.
Have you ever given thought to the value of perspective that each member of the professional divorce team brings to the table?
Every divorce is different. Each having it's own set of assets, emotions and narrative. The strength and knowledge of each professional involved can have a major impact on the outcome.
Perspective is a way of regarding situations, facts, etc., and judging their relative importance. Perspective is the capacity to view or think about a situation or problem in a wise and reasonable way.
Certified Divorce Lending Professionals (CDLP™) have a completely different perspective when looking at a divorce settlement agreement and participating in the actual settlement or mediation process. CDLP™s don't just look at the divorce settlement agreement and how it applies to the borrowing spouse's mortgage application. They have a much wider viewpoint and understanding of the entire process - a deeper and stronger perspective of the overall impact divorce...