“I can’t buy a new home if I’m still on the marital mortgage!” is often the statement made by the spouse leaving the marital home. Unfortunately, this isn’t necessarily true.
In many divorce situations, the spouse retaining the marital home won’t qualify to refinance the current mortgage and the vacating spouse believes they can’t qualify to purchase a new home while remaining on the mortgage for the marital home.
This thought process seems rational; however, there are certain steps and verbiage to include in the divorce settlement agreement that can remove this obstacle. While many mortgage companies have their own guidelines or ‘overlays’ to investor underwriting guidelines, a Certified Divorce Lending Professional (CDLP) will know how to handle Court-Ordered Assignment of Debt and the correct verbiage needed in the divorce settlement agreement or separation agreement.
When a borrower has an outstanding debt that was assigned to another party by court order (such as under a divorce decree or separation agreement) and the creditor does not release the borrower from liability, the borrower has a contingent liability. The lender may not be required to count this contingent liability as part of the borrower’s recurring monthly debt obligations if handled properly.
The key; however, is to work with a knowledgeable and trained divorce lending professional. A Certified Divorce Lending Professional (CDLP) understands the different requirements of working with contingent liabilities. There can be hidden issues including title requirements as well as payments made by the spouse that is now liable. These hidden issues can result in denied mortgage financing.
If you have any questions regarding a client’s contingent liabilities and how it will be considered in qualifying for a future mortgage, please contact me today!
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Always work with a Certified Divorce Lending Professional (CDLP) when going through a divorce and real estate or mortgage financing is present. For more information on mortgage lending, contact us today!