Getting a divorce is often a deeply challenging and stressful time. Factoring in the owning of a home only adds to that stress as well. As someone who’s been there, done that, I understand how exhausting the process can be to get a signed agreement. But in the push to get this process across the line, I see these mistakes made too often and I don’t want them to happen to you.
Using Child Support & Alimony to Qualify
Often when getting a divorce, individuals can receive some new income in the form of alimony or child support. But does that mean you can use that new money to qualify for a new home loan?
Not necessarily.
Even if you might have a signed agreement stating how much you’ll receive for child support and/or alimony, you can’t use it right away for your mortgage approval. That’s because there are two main requirements for this kind of income to count when applying for a mortgage:
1. Depending on the loan program, you’ll need to receive the payments for 3-6 months. The payments will need to be the amount stated in the agreement and can’t come from a joint account.
2. The payments must continue for at least three more years.
There’s no shortage of nuances when qualifying for your mortgage. For any questions or concerns you have about supplemental income and how it can affect what you qualify for, be sure to work with a mortgage expert that you trust.
Need to Buy Out Your Ex?
When a couple owns a home and is getting a divorce, it’s common that one of the parties wants to keep the house and the other one wants their share of the equity in the house.
For most mortgage scenarios this would be accomplished with a cash out refinance. These guidelines allow someone to finance up to 80% of the appraised value of the home and the rate tends to be around .25% higher than if it was a purchase or a regular refinance.
However, the rules are different for a divorce buyout refinance. So long as the home was jointly owned for the last 12 months, you can borrow up to 95% of the appraised value with a rate lower than a standard cash out refinance. This is a simpler and cheaper solution to buy out your ex-spouse because you can borrow more of the equity rather than needing a second mortgage.
When going through divorce proceedings, a home owned by both parties often becomes a big factor in the negotiations. The biggest problem is, however, a lot of what’s negotiated (refinancing to remove one spouse from the loan or tapping into equity to buy out the ex) can’t be done in a way that appeases both spouses.
If real estate factors into your divorce, check with a lender and confirm that your plan to buy or refi is feasible before signing your agreement to avoid putting yourself in a tough situation. This is something I specialize in and have experience with. Contact me or a member of my team and we’ll be sure to provide you with the support you need.