Divorce is a challenging process that brings numerous financial considerations, one of the most significant being the impact on homeownership. Among the myriad of concerns, mortgage lending during a divorce is often misunderstood, leading to misconceptions that can cause unnecessary stress. In this post, we’ll debunk some common myths about divorce mortgage lending and provide clarity on what you need to know.
Myth 1: You Can’t Qualify for a Mortgage During Divorce
Reality: It is possible to qualify for a mortgage while going through a divorce, but it requires careful planning and documentation. Being prepared with all necessary documents, including income statements, credit reports, and details of any spousal or child support arrangements, is crucial. Working with a knowledgeable mortgage broker who understands divorce situations can make the process smoother.
Myth 2: Your Ex-Spouse’s Credit Score Doesn’t Affect You
Reality: If you and your ex-spouse jointly hold a mortgage or other loans, their credit behavior can impact your credit score. Late payments or defaults on a joint loan will reflect on both of your credit reports. Therefore, it’s essential to ensure that any joint debts are managed responsibly or refinanced into individual names to protect your credit standing.
Myth 3: Selling the Home is the Only Option
Reality: Selling the marital home is not the only solution during a divorce. Depending on your financial situation and the equity in the home, you might be able to refinance the mortgage to remove your ex-spouse’s name, allowing you to keep the property. This option often requires proving that you can afford the mortgage payments on your own, which might involve securing spousal or child support as part of your income.
Myth 4: Spousal or Child Support Can’t Be Counted as Income
Reality: Spousal or child support is considered income if you can document it reliably. Typically, lenders require proof that you’ve received these payments consistently for at least six months and that they will continue for a certain period, usually three years or more. This documentation can significantly improve your mortgage application’s strength.
Myth 5: You Can Easily Remove Your Name from a Joint Mortgage
Reality: Removing your name from a joint mortgage is not as simple as just notifying the lender. The remaining party needs to qualify for a refinance in their name alone, which means they must meet the lender’s income and credit requirements independently. If refinancing is not an option, you might remain liable for the mortgage, even if you no longer own the property.
Myth 6: Divorce Automatically Settles Mortgage Liability
Reality: A divorce decree does not change your mortgage contract with the lender. Even if the court assigns the home and mortgage responsibility to one party, both names remain on the mortgage unless action is taken to refinance or sell the property. Failing to address this can result in continued financial liability and credit implications for both parties.
Myth 7: You’ll Lose Your Home if You Can’t Agree on Terms
Reality: Losing your home isn’t inevitable if you and your ex-spouse can’t agree on mortgage terms. Mediation or arbitration can help resolve disputes without resorting to a forced sale. Additionally, working with a financial advisor or divorce mortgage specialist can help create solutions that protect your interests and financial future.
Conclusion
Understanding the realities of divorce mortgage lending is essential for making informed decisions during a divorce. Myths and misconceptions can lead to poor financial outcomes and increased stress. By debunking these myths, you can approach the process with greater confidence and clarity. Always seek professional advice tailored to your specific circumstances to navigate this complex area effectively. Navigating divorce and mortgage lending simultaneously can be daunting, but with the right knowledge and support, you can make informed decisions that safeguard your financial well-being. Remember, every situation is unique, so personalized advice from professionals here at Advisors Mortgage Group is invaluable.
