Tag: Mortgage equitable distribution

Divorce and Mortgage Tips

Posted by Ron Kauffman on

When there is equity in the home, everyone wants their share of the money as part of the final divorce. But, when one person wants to remain in the home, the party who decides to stay in the home will likely have to qualify for a mortgage on his or her own.

Staying in the Home

There are a lot of issues involved in the marital home, and when applying for that post-divorce mortgage. I’ve written before about property divisions when the housing market was down. Now that the housing market is in recovery, different issues arise.

Spouses who choose to stay in the home may have to refinance the mortgage to cash out enough equity to pay off their soon-to-be Ex. Even a spouse who has the financial resources for a buyout will still have to get a mortgage in his or her name.

The spouse walking away from the house, not only wants their share of the equity in the property, but need to get their name off the existing mortgage for a couple of reasons.

First, their name must be removed so their credit score won’t reflect the debt, that way they won’t be liable for any non-payment.

Once your name is on the mortgage, you are jointly and severally liable for the entire debt amount. The mortgage can tie up your credit, making it difficult to qualify for another mortgage, or even a car loan.

Worse still, if there’s a default or late payment of the mortgage – you are not only going to be sued – your credit report score could drop considerably, even though you are not at fault.

Investopedia offers a few tips to give yourself the best chance at getting a new mortgage after your divorce.

Pay the current mortgage

Even if you moved out of a jointly owned home during your separation, if your name is on the mortgage, you are still responsible for the payments. You may want to ensure that your spouse is keeping track of the bills to avoid damaging your own credit.

If your spouse refuses to make payments on the mortgage, and you rack up late notices or even a foreclosure, your own credit score can be badly hurt.

The result of a poor credit score could be a much higher interest rate on your new mortgage, which will cost you thousands over the lifespan of the loan, or rejection.

Remove your name from the mortgage

Your settlement and divorce decree may declare that you’re no longer responsible for the mortgage on the former marital home, but not in the eyes of the mortgage company! Before you can qualify for that post-divorce mortgage, you may have to refinance.

Unfortunately, getting your name off of the existing mortgage isn’t easy. In order to officially have your name removed from the mortgage, the spouse keeping the home will either have to refinance the home and qualify for an entirely new mortgage, or sell the home.

Until either of two choices are made, the mortgage payments are still directly linked back to your own credit — no matter what your divorce decree states.

In these situations, it is not unusual to add a clause to your agreement giving a party a period of time to either refinance the house or sell the house.

Don’t buy a new home yet

As with all major life changes, your divorce will significantly affect your financial status. Hold off on your decision to apply for that post-divorce mortgage and buy that new home until you’ve had time to adjust to a newly single income, child support payments, and alimony payments.

Purchasing a new home immediately after your divorce is final can be tempting, but don’t forget to take care of these three items first.

By making financially wise decisions with your current mortgage, you’re setting yourself up for success—when the time comes to get a new mortgage and move into your new home.

The Investopedia article is available here.

 

Mortgages & Divorce

Posted by admin on

By The Law Offices of Ronald H. Kauffman of Ronald H. Kauffman, P.A. posted in Equitable Distribution on Tuesday, November 10, 2015.

It’s real estate tax time, and deciding how to equitably distribute the marital home in a divorce can be a headache – especially when both spouses are on the mortgage.

As the New York Times recently reported, when there is equity in the home, each spouse typically wants to take a share as part of the settlement agreement.

But if one person wants to remain in the home, rather than sell it and split any profit, then that spouse will likely have to qualify for a mortgage on his or her own.

There are a lot of issues involved in the marital home. I’ve written before about property divisions when the housing market was down. Now that the housing market is in recovery, different issues arise.

Spouses who choose to stay in the home may have to refinance the mortgage to cash out enough equity to pay off their soon-to-be Ex. But even a spouse who has the financial resources for a buyout will still have to get a mortgage in his or her name.

The spouse walking away from the house, not only wants their share of the equity in the property, but must get their name off the mortgage so their credit score won’t reflect the debt, and so they won’t be liable for any non-payment.

Once your name is on the mortgage, you are jointly and severally liable for the entire debt amount. The mortgage can tie up your credit, making it difficult to qualify for another mortgage, or even a car loan.

Worse still, if there’s a default or late payment of the mortgage – you are not only going to be sued – your credit report score could drop considerably, even though you are not at fault.

In order to determine who gets to keep the house, you must consider who qualifies for a new mortgage on their own. If you do, could you afford all the other expenses associated with living in that home: taxes, insurance, utilities, lawn, pool, maintenance etc.

As the New York Times reports:

This preparation should happen early on in the divorce process, but too often people are too busy arguing, litigating, fighting, and having no idea of the whole picture.

A few things to consider: find out from a mortgage broker how much mortgage you could afford early on in the case. Spouses planning to count child support and alimony as income to qualify for a mortgage should know that lenders will require proof of at least six months’ receipt of that income before closing. In addition, there are other Fannie Mae guidelines.

The New York Times article is available here.