Divorce and Mortgage Approval
It is tough enough to go through a divorce. And 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 separate and eventually divorce, it may not be 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- a fact you must state on your mortgage application. And marital settlements aren’t just any lawsuit. They require numerous financial obligations to be worked out, making 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. It 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. Three common conventional loan requirements when using alimony and child support income are 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, but other legal agreements or court decrees will work if there is none.
Regular Payments – The borrower must document six months of regular and timely receipt of this income prior to closing their mortgage loan. If the payments are irregular or have not been received for six months, it is considered unstable and cannot be used as qualifying 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 as of the date of closing, the debt does not need to be counted against the borrower. This date is usually set forth in the divorce decree but the lender could also require additional documentation if the support ends upon a specific event, such as high school graduation.
For alimony, lenders have the option to reduce the qualifying income by the amount of the alimony obligation. This has a large impact on qualifying for a home loan and will typically improve a borrower’s debt to income ratios dramatically.
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.