A successful divorce settlement is a result of putting the pieces of the puzzle together in such a manner that both divorcing parties come out of the divorce whole or at least on the road to recovery. But how do you get there?
Divorce and mortgage financing concerns are often a touchy subject in divorce situations. Particularly when one spouse is dependent upon income awarded from the divorce for mortgage qualifying purposes and also when contingent liabilities are present, such as a jointly held mortgage on the marital home.
Having a basic understanding of how lenders look at the various aspects of divorce can have a significant impact on the success of the divorce when real estate and the marital home are front and center. The timing of the divorce filing, sources of income awarded in a divorce settlement as well as how joint and contingent liabilities are handled should be addressed with the help of a Certified Divorce Lending Professional to better serve the divorcing spouses who are concerned with the ability to obtain mortgage financing post-decree.
Timing of Filing Divorce Petition:
When a petition for divorce is filed, most mortgage lenders will require either a temporary settlement agreement or a finalized divorce settlement agreement ordered by the court in order to complete and close a new mortgage application and/or loan.
Every divorce is a unique situation and the documentation requirements for obtaining mortgage financing will vary depending on the situation. I understand that this is a very emotional and private time for you and I hope by providing this information I can diffuse some of the negative emotions involved.
Qualified Income and 6/36 Rule:
There is a significant difference between what is viewed as income and what counts as ‘qualified income.’ In divorce situations, there is oftentimes the receipt of maintenance, child support, and income from a property settlement note. While each constitutes as ‘income’ – each source must meet specific requirements to be considered as qualified income for mortgage financing.
In order to utilize maintenance and/or child support as income for mortgage financing purposes, each source must meet the ‘6/36’ rule. You must be able to provide documentation showing receipt of this income for the previous 6 consecutive months. Additionally, at the time of mortgage application, there must remain 36 months of future payments due to you. Otherwise, this portion of your actual income can not be considered as income for mortgage financing purposes.
Where both parties are jointly obligated for the payment of a debt; however, the court orders one party responsible for the payment of the debt is considered a “Contingent Liability.” Note: even though the court can order one party responsible for the payment; neither party is released from the overall obligation to the creditor.
The most common instance in a divorce situation is with current mortgage financing. If the court orders one party responsible for the mortgage payment on the marital home, the current mortgage debt is now considered a contingent liability and is NOT counted in the debt to income ratio for the other party when seeking new mortgage financing.
Do you have questions about how divorce can impact the ability to obtain mortgage financing? The knowledge and experience of a Certified Divorce Lending Professional (CDLP) can help make the transition much smoother and successful for all parties involved.
Working with an experienced mortgage professional who is well versed in the many ways the divorce affects the mortgage is a huge benefit to both the divorce team as well as the divorcing homeowners. You can’t think traditionally when working with divorce and mortgage financing.
Always work with a Certified Divorce Lending Professional (CDLP) when going through a divorce and real estate or mortgage financing is present.
If you’d like to start the process of getting a home, come see us at the Tammi Lindley Team. We are Portland’s premier mortgage lenders, offering hundreds of mortgage products so you can pick the mortgage that matches your needs. Contact us today and start the process of owning your dream home.