What You Want To Know
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Most marriages have a legitimate home, and it is often the greatest or one of the greatest assets. Often times, especially when there are children, a spouse wants to keep the marital home. In either case, at least one of the spouses needs to find a new home, and the goal may be to buy a new house or apartment.
What You Need To Know About Mortgages:
Unfortunately, most lenders do not simply allow a spouse to take over the existing mortgage. If both spouses take out the mortgage, refinancing will likely be required to take one spouse off the mortgage. Why is that important? Because no matter what the settlement agreement or divorce decree says, if you take out a mortgage, the lender will hold you responsible for the mortgage payments. The mortgage will also continue to show up on your credit report as an obligation that may prevent you from obtaining credit that you may need for other purposes.
Refinancing is associated with costs. Refinance fees can be 2 to 4%, interest rates may have increased, and your creditworthiness may have decreased, which in most cases increases the total cost of the mortgage. Refinancing is a time when you want to be smart and know what mortgages are all about so you know what to ask and what to consider when shopping.
Another setback in buying a home after divorce for many women is that they have little work / wages. Regardless of your wealth, most banks today want you to have a job. When planning to refinance or buy a home, you should expect some planning and waiting. Talk to a mortgage professional early on.
If you need child support, child support, or other payments made under the separation agreement to qualify for a loan, prepare for a delay. Don’t be surprised that a certain number of payments must be made both in the past and in the future to qualify for a loan. The number of payments required depends on whether a traditional loan or an FHA loan is used.
In the case of a conventional loan, income from maintenance payments, child maintenance payments, or separate maintenance payments can be considered qualified income if the documentation shows that the debtor has been required to make payments to the borrower for at least the last six months (and this is consistently due do) is required to make payments to the borrower for the next three years. Proof (documentation) is required.
For an FHA loan, when a final divorce decree, legal separation agreement, or court order is used, the income from alimony, alimony, or split alimony may be considered qualified income if the records show that the payer was obligated (and has done so consistently has)) Payments to the borrower for at least the past three months. If a borrower receives voluntary payments from a former spouse, they must provide evidence of twelve months of timely payments. In both cases, evidence that payments to the borrower are required for the next three years are required and the evidence (documentation) is required.
If you are the payer of assistance obligations, these payments are considered debt obligations and will be included in the solvency test, unless those obligations expire within 10 months or less.
An existing mortgage will be counted even if court documents state that you are not responsible for the mortgage. A few years ago, when the separation or divorce papers stated that one party was giving up their rights to the home and the other party was responsible for selling or refinancing the home, sometimes a bank would not have the mortgage as part of your outstanding debt considered. No more. Any mortgage debt that someone is now obliged to owe must be counted against them as debt for most mortgage types (regardless of what court documents show). Even with freehold properties being freely and clearly owned … taxes, insurance, and applicable HOA fees must be counted as debt. Refinancing to waive the financial obligation (and of course waiving all rights and interests in the property required for refinancing) is currently the only option.
The above credit standards were in effect at the time of this article. Mortgage policies can and do change at any time. It is important to understand that divorce creates a period of time when obligations to or from a former spouse are considered and can delay the time in which you can qualify for a loan.
If you are holding, selling, or buying a home because of a divorce, contact a Certified Divorce Financial Analyst who can help you avoid taxes and other pitfalls that can arise when making this important financial decision.