One of the most significant questions when considering divorce is “where will you live?” E5 developed this multi-part series on navigating the credit, income and home financing process during divorce.
E5 Home Loans Divorce Mortgage Guidance Series
Living scenarios may include stay, rent or buy a new home in the immediate or distant future. Consider these common pitfalls as you navigate the separation/divorce process:
Failure to pay bills or sign documents
Joint credit is very common. Even during separation, it’s important both parties pay bills in a timely fashion. Late or missed payments negatively impact both spouses’ credit moving forward. Creditors don’t care about side agreements. They want their payment.
In addition to timely payments, it’s critical to execute documents on time. A quitclaim deed to remove the exiting spouse from Title can create challenges if not signed in a timely manner.
Joint debts and assets
Many couples have joint credit and/or asset accounts. Until re-assigned or closed, they impact the credit of both partners, regardless of who is paying them. It’s still your responsibility to ensure any bills in both names are paid. Also, be aware either account holder can potentially withdraw more funds. Be diligent in regularly checking balances and tracking your expenses during the separation and even after the divorce.
Unable to refinance joint mortgage issued with two incomes
Couples commonly use both incomes to qualify for a mortgage. After divorce, one individual can’t qualify or afford to own the home solely. The result is frequently selling a jointly owned house. Both partners may need to consider downsizing. It’s important to research what income and expenses will be considered for any future loan qualifications. Consult a licensed loan officer to learn more.
Confusion about what income sources qualify for a mortgage, specifically terms of spousal support
Stay-at-home spouses with no work history or credit score must understand this. Be very aware of how these terms can impact your ability to qualify for a mortgage. Standard divorce terms can provide 3 years of spousal support payments, which may not be long enough to be considered qualifying income.
Confusion about responsibility for marital mortgage/debts
If a spouse agrees to retain a jointly owned home and take financial responsibility without refinancing, this does not relieve the exiting spouse of their responsibility for that debt. Nor may it prevent the exiting spouse from claiming rights to equity in the house.
For example, a divorce decree might state the retaining spouse is financially responsible for the entire mortgage payment until the home is refinanced. However, creditors and credit bureaus do NOT take that decree into consideration. The exiting spouse’s credit report will still show that mortgage as a liability. When applying for a new loan, the lender may or may not take the decree into consideration.
The importance of timelines!!!
Some divorce terms include conditional timelines. One spouse may have up to one year from divorce to refinance a house, or payoff and close joint credit cards. If these timelines are not met and not enforced, they can be nullified. This could result in additional court and legal fees to correct.
Tune in for more information on Divorce Mortgage Guidance from E5 Home Loans as we continue to review the various scenarios for selling and buying homes for divorcees.
If you have any questions about how you can best prepare yourself leading up to a separation or divorce, consult a licensed loan officer in addition to any legal advice. E5 Home Loans has loan officers trained in Divorce Mortgage Guidance. Plus, E5 shops the best loan products for your situation across many lenders and we don’t charge a bunch of crazy fees. Contact us today.