Many times during a divorce settlement the main goal is to help the
divorcing couple get out of their current situations and we forget to
realize how the divorce settlement will affect their ability to secure
financing in the future. In order for the divorcing clients to be successful post decree and have the ability to execute any divorce settlement agreement requirements, i.e., refinancing one spouse off of current mortgage, qualifying for a new home purchase using maintenance as qualifying income, etc.
It is imperative to involve your mortgage team member during the early stages of the divorce and not just refer your divorcing clients to them post decree. There are so many more moving parts during a divorce loan process when you have support as income, division of assets, joint liabilities, and more that require the expertise of a CDLP—Certified Divorce Lending Professional.
Let’s look at some of the moving pieces of mortgage planning and the divorce settlement process are related and gain a better understanding of how important it is to begin the mortgage planning process during the settlement process rather than once the marital settlement agreement is finalized and all parties must deal with the cards that are dealt.
Timing of Filing Divorce.
Probably the most common question I am asked from my divorcing clients and partners is ‘when can the refinance be done – do I have to wait to purchase a new home – and more’ – all relating to the timing of actually filing for the divorce. It is important to understand that once the petition for divorce has been filed, any mortgage financing will need to wait to close/finalize until the final divorce judgment has been entered and signed by the judge or temporary orders are in place that meet mortgage guidelines.
Income vs. Qualifying Income
Often times in a divorce and mortgage situation there are various types of income to consider: Employment Income; Alimony/Maintenance Income; Unallocated Maintenance Income; Child Support Income; Property Settlement Note Income; and more. Although all sources of income are considered “income” by the recipient, it is important to understand that from a mortgage financing perspective, not all sources of income are considered “Qualifying Income.”
In order to be considered as “Qualifying Income” certain requirements of each income source must be met. For divorcing clients who will need mortgage financing once the divorce is final, involving a mortgage professional who specializes in Divorce Mortgage Lending during the divorce process rather than post decree can potentially help avoid common pitfalls when “Income” is not considered as “Qualifying Income.”
Alimony/Maintenance, whether unallocated or allocated, along with child support must meet specific requirements to be considered as “Qualifying Income” for mortgage financing purposes by meeting both continuance and stability tests.
Continuance: A key driver of successful homeownership is confidence that all income used in qualifying the borrower will continue to be received by the borrower for the foreseeable future. Must be able to document that income will continue to be paid for at least three years AFTER the date of the mortgage application. Check for limitations on the continuance of the payments, such as the age of the children for whom the support is being paid or the duration over which alimony is required to be paid.
Stability: A review of the payment history is required to determine its suitability as stable qualifying income. To be considered stable income, full, regular, and timely payments must have been received for six months or longer.
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. To find a CDLP in your area, please click here.
This is for informational purposes only and not for the purpose of providing legal or tax advice. You should contact an attorney or tax professional to obtain legal and tax advice. Interest rates and fees are estimates provided for informational purposes only, and are subject to market changes. This is not a commitment to lend. Rates change daily – call for current quotations.