The first rule of mortgages in divorce is to define and resolve each spouses financing goals before signing a final agreement.
Although every situation is unique and mortgage qualification requirements change (often), it is always true that divorcing couples must plan ahead. Here’s what you need to know.
Spouses who will depend on child and spousal support want to understand what income will qualify for a mortgage or refinancing.
An income dependent spouse who needs mortgage financing post-divorce – because s/he wants to purchase a new home or is required to refinance an existing jointly held mortgage with a specified time period in the decree – must determine whether there will be enough qualifying income to satisfy requirement (and requirements change). They also need an experienced lender such as lenders who are Certified Divorce Lending Professionals – part of the Divorce Lending Association.
There are two parts to qualification for the income dependent spouse – continuance and stability. Generally speaking, the income dependent spouse will need to show that income will continue to be paid for 36 months after the mortgage application. In addition, the income dependent spouse will need to show sustainability – at least six months of payments received before the application is made – longer if these payments represent more than 30% of gross income. Borrowers who include child support as qualifying income may be able to gross up this support (which is paid with after tax dollars) by 25% for mortgage qualifying purposes.
Spouses who leave the marital home jointly encumbered with a mortgage on that home want to understand how the joint mortgage on the first home will impact any other mortgage application.
Often the spouse who leaves the marital home is still a joint owner of the mortgage on that home. The decree may require that only the resident pay the mortgage. This creates what is called a contingent liability for the spouse who no longer resides there. A qualified lender will understand how to handle Court Ordered Assignment of Debt. The lender is not required to count this contingent liability as part of the borrower’s recurring monthly obligations but may look at whether payment were made regularly before the existing mortgage was assigned by the court.
If you or your spouse plan to keep the family home or any other real estate that requires mortgage financing, get to know the consequences of your divorce on financing now and into the future – before you sign that final agreement.
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