Divorce and Mortgage Approval
It is tough enough to go through a divorce. Of all the considerations during this stressful time, getting approved for a mortgage is often one of them. Below are commonly asked questions and information to help guide you through the process of mortgage approval while going through a divorce.
Please keep in mind, none of this is intended to be legal advice. This simply addresses mortgage financing issues surrounding divorce.
Can I get approved before the divorce officially begins?
If you and your spouse are preparing to divorce, it’s not a bad idea to establish separate housing before the legal process officially begins. Once the petition for divorce is filed you are technically party to a lawsuit. And lawsuits must be stated on your mortgage application. Marital settlements aren’t just any lawsuit. They require numerous financial obligations to be worked out. This can make it nearly impossible to gain mortgage approval in the midst of a divorce. So, if it makes sense to live in separate homes, consider the option before coming to a final decision to file the petition. This will allow for a much easier transition into buying a new home.
Can I use child support or alimony as qualifying income for mortgage approval?
The short answer is YES. But with some stipulations. There are three common conventional loan requirements when using alimony and child support income. Term minimums, documentation of regular receipt, and finalization of the payment terms.
Three-Year Minimum – Alimony and/or child support income must continue for a minimum of three years after the date of mortgage application. This is typically documented within the divorce decree. If not, documentation in other legal agreements or court decrees will work.
Regular Payments – The borrower must document six months of regular and timely receipt of this income prior to closing their mortgage loan. If payments are irregular or have not been received for six months, they typically cannot qualify as income.
Finalized Terms – Proposed or voluntary payments prior to the divorce being finalized cannot be considered as income unless specified in a legal separation agreement.
If I have to pay alimony and child support, will those debts be counted against me?
The short answer is also YES. There are exceptions, however, as well as ways to lessen the impact it may have on your loan approval.
If the child support will continue for 10 months or less after closing, the debt does not need to be counted against the borrower. This end-date is usually set forth in the divorce decree. If the support ends upon a specific event (such as high school graduation) the lender could also require additional documentation.
For alimony, lenders have the option to reduce qualifying income by the amount of alimony obligation. This will usually make for a dramatic improvement on the borrower’s debt-to-income ratio.
As with every personal financial situation, no two scenarios are exactly the same. Please reach out to United Home Loans for answers to any of your mortgage financing questions in the form below or calling 708-531-8388.