Qualifying for a mortgage when getting divorced – what you need to know
Qualifying for a mortgage is a challenging process with regards to the amount of supporting documentation borrowers must provide along with strict underwriting guidelines enforced by financial investors. Adding a divorce to the transaction may make the process even more daunting for borrowers. However, with careful planning, many borrowers going through a divorce can still successfully get a mortgage.
Borrowers should keep in mind that the more information they share with their lender with regard to their divorce proceedings, the more smoothly the process will go. The lender will require a copy of the divorce decree which will inform them of any undisclosed financial obligations that do not show up on the credit report. Examples of this include paid or received child support or alimony/spousal support. If an individual received income in the form of spousal or child support, they may use this to qualify for the mortgage as long as there is a six-month history and they decree outlines that this income will continue for the next three years. However, if an individual pays alimony or child support, this will reduce their borrowing ability as this paid out income counts against them.
If a borrower currently own a home and is on the mortgage with their ex-spouse, as long as the divorce decree awards the other party with the home and the other party can provide evidence that they make the payments on the home by providing 12 months of bank statements, the total mortgage on the home can be eliminated from the new mortgage process, which can improve the borrower’s ability to qualify.
If an ex-spouse is responsible for making the mortgage that both parties are on, it might be in the borrower’s best interests to have their ex-spouse refinance them off the mortgage. If this is decided by both parties, a final closing statement called a closing disclosure (formerly called a HUD) will be required by the lender to omit the payment from the other house.
The most important piece of information to take away is that until you are officially divorced and have a divorce decree or settlement agreement, the mortgage process will undeniably be more difficult until the lender can determine each party’s financial obligations. Consider having a conversation with one of our mortgage professionals upfront. We can guide you through the complexities of this difficult process and provide supportive and informative advice when needed.