As if mortgage financing isn’t complicated enough; divorce can complicate matters even further. It’s important to remember that divorce is a pending lawsuit, and while most lending agencies currently do not require that a divorce be noted as a lawsuit on mortgage loan applications, there are other issues with mortgage financing during a pending divorce.
Final Divorce Settlement Agreement:
Because a divorce can change the entire landscape of a borrower’s financial picture, mortgage lenders typically are unable to close a mortgage loan until the divorce is final and a copy of the final divorce settlement agreement is obtained.
- A large portion of the borrower’s income may now become payable to an ex-spouse to provide spousal support or child support as well as being obligated for paying the additional debt.
- Assets may be divided amongst the two divorcing spouses which may alter the required reserves.
- Credit files may become complicated and impacted by the closing of joint marital debts and opening new individual accounts.
While some investors may be willing to close a new mortgage loan prior to the finalization of the divorce case; most will require that a portion of the divorce is finalized with copies of legal documents supporting such agreements.
When working with divorcing clients on mortgage financing, mortgage professionals have certain requirements to meet before using certain income sources for qualifying purposes that must meet stability and consistency tests. It’s also one of the hardest guidelines for a client to understand and creates a lot of frustration when they have sufficient income coming in every month but then the divorcing lending professionals have to chunk it down to determine what income sources are useable and which ones are not.
While dividing the marital home may be as simple as transferring ownership to one party or selling the home; separating financial histories may be more complicated.
Joint financial history can include home mortgage loans, installment loans such as automobiles, student loans, and credit cards. Whether debt is considered separate, marital or community, it can play havoc on obtaining mortgage financing.
Although a judge may order one party responsible for paying a specific debt after a divorce, the court cannot alter the original agreement between the consumer and creditor.
It is always important to work with an experienced mortgage professional who specializes in working with divorcing clients. A Certified Divorce Lending Professional (CDLP) can help answer questions and provide excellent advice.
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