Divorce changes many things when obtaining mortgage financing. Recognizing many of the significant differences can help make future mortgage financing a smoother process.
- Timing of Filing Divorce Petition. The timing of filing a divorce petition with the court has a direct impact on mortgage financing. When a petition for divorce is filed, most mortgage lenders will require either a temporary settlement agreement; a finalized divorce settlement agreement ordered by the court; or another legal document in order to complete and close a new mortgage application and/or loan.
- Capital Gains upon the Sale of the Marital Home. Many times divorcing couples agree to hold on to the marital home until a certain event happens in the future such as a child finishing school, etc. If you anticipate any type of Capital Gains when the sale of the home occurs please be sure to discuss your options with your attorney and/or financial planner.
- Title Vesting. Title Vesting is the manner in which ownership/title is held on the property. Various states have various ways of holding title; however, the 3 most common are Tenancy by the Entirety; Joint Tenancy with Survivorship and Tenancy in Common. If you are retaining the marital home and leaving any current mortgage financing in place, be sure to discuss current title vesting with your attorney as a divorce judgment may have a default effect on title.
- Contingent Liability. Often times in a divorce situation the divorce settlement agreement will specify which party is responsible for the payment of specific debt obligations. In situations where both parties are jointly obligated for the payment of a debt, the court will typically order one party responsible for the payment. When this occurs the debt is now 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.
- Qualified Income. There is a significant difference between what is viewed as income and what counts as ‘qualified income.’ In divorce situations, there is often times 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.
- Equity Buyout. In a divorce situation when one spouse is required to refinance the marital home to give the vacating spouse a cash settlement for their share of equity in the marital home—it is considered an “Equity Buy-Out” in most situations. Equity Buy-Outs typically have better terms over a cash-out refinance
- 90 Day Cash Rule. If you are considering purchasing a new home with cash to avoid any potential mortgage financing during the divorce process and plan to take a mortgage out in the future, you should understand the 90 Day Cash Rule. When you take a mortgage loan out after 90 days of buying a new home with cash, you may be limited on the amount of mortgage interest you can deduct on your Federal Income Tax.
- Maintaining Credit During Divorce. Maintaining your credit during a divorce can sometimes be a challenge; however, understanding what impacts your credit score ahead of time can be beneficial. You have the ability to access your credit report from all 3 bureaus (Experian, Equifax, and Transunion) annually. Visit www.annualcreditreport.com for your free report.
- Appraised Value / Appraisal. One of the first steps in dealing with real estate issues in a divorce situation is to determine the value of the property. If you and your spouse are unable to agree on the current market value, there are several valuation methods that can be used. Obtaining an appraisal from a licensed appraiser should be the preferred method for establishing value.
- Documentation Required. Every divorce is a unique situation and the documentation requirements for obtaining mortgage financing will vary depending on the situation. You should be prepared to provide an executed copy of the final Divorce Settlement Agreement or other legal agreement; Proof of age for children whom child support is paid for; Proof of receipt of maintenance/support. Depending on the situation of your specific divorce, there may be a need for more or less documentation.
Why You Need a Certified Divorce Lending Professional (CDLP) on Your Professional Divorce Team.
A professional divorce team has a range of team players including the attorney, financial planner, accountant, appraiser, mediator and yes, a divorce lending professional. Every team member has a significant role in ensuring the divorcing client is set to succeed post-decree. Certified Divorce Lending Professionals bring the financial knowledge and expertise of a solid understanding of the connection between Divorce and Family Law, IRS Tax Rules and mortgage financing strategies as they all relate to real estate and divorce. Having a CDLP on your professional divorce team can provide you the benefit of:
- A CDLP is skilled in specific mortgage guidelines as they pertain to divorcing clients.
- A CDLP is able to identify potential concerns with support/maintenance structures that may conflict with mortgage financing opportunities.
- A CDLP is able to recommend financing strategies to help divorcing clients identify mortgage financing opportunities for retaining the marital home while helping to ensure the ability to achieve future financing for the departing spouse.
- A CDLP is qualified to work with divorce professionals in a collaborative setting.
- A CDLP can provide opportunities in restructuring a real estate portfolio to increase available cash flow when needed.
The role of a CDLP is to help not only you as the divorcing client but also the attorney and financial planner understand the opportunities available, as well as the challenges divorce, can bring to mortgage financing during and after the divorce. When the CDLP is involved during the divorce process and not after the fact, many potential financing struggles can be avoided with valuable and educated input from the Certified Divorce Lending Professional.
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.
Always work with a Certified Divorce Lending Professional (CDLP) when going through a divorce and real estate or mortgage financing is present.
Copyright 2019 Divorce Lending Association. No portion of this post may be reproduced without the written consent of the Divorce Lending Association.