While everyone realizes that divorce is part life, the divorce itself can create concerns for lenders.
Many hard-working, financially-secure people will go through a divorce at one point or another, but these people will still find difficulty when applying for a loan during a divorce. Divorce creates many unknowns; before all the paperwork and legal navigation is completed, lenders won’t be able to pin down your future income and expenses.
Why is Divorce a Concern for Lenders?
A divorce itself will not actually hurt your credit score, but it could lead to financial problems, which in turn could lead to missed payments and a drop in the credit rating.
Also, your credit score could be hurt if accounts that you and your spouse hold jointly become delinquent. For example, if both your names are on the car payment, and you expect your spouse to pay but he or she does not, your credit will be harmed.
Simply put, going through a divorce creates many different unknowns, and lenders like to have all the information they can. A divorce makes future financial numbers hard to predict. For this reason, some lenders avoid working with people who are going through a divorce.
At San Diego Purchase Loans, however, we’ll do what we can to help you get approved. Keep these tips in mind, and you’ll increase your chances of mortgage approval during a divorce.
Tips for Getting a Mortgage Loan During a Divorce
Before we start, we must emphasize that this article is for general information only. In no way should it be considered professional legal advice of any kind. Always talk with a professional attorney and loan specialist before making any decisions related to finances, divorce, or mortgage loans.
If you have specific questions about the details of getting a loan before, during, or after your divorce, please contact our knowledgable team.
Consider Your Financial Situation After the Divorce is Finalized
It can be difficult to predict your income and assets after a divorce, but you should do your best to gauge exactly how much income you will have and what payments you will make after the divorce is finalized.
Ask yourself questions such as these:
- Will I be paying alimony? If so, how much?
- Will I be paying child support? If yes, how much?
- Will I still be making payments on cars or other vehicles?
- Are there any high-value assets that should be sold, such as campers or boats?
- What will legal fees cost during the divorce?
- What bills will I be paying after the divorce?
- What bills will my spouse be responsible for after the divorce?
These questions can be complex, so it’s probably best to go over all of these factors with a qualified divorce attorney who can provide advice on areas such as alimony and child support. After talking with a divorce attorney, you may be able to generate documents verifying your potential income and expenses after the divorce, which you can then take to the lender’s office.
Separate Your Accounts Immediately and Use Only Your Money
If you are at the point where you need to purchase a home entirely in your own name, you need to make sure that there is no financial or legal connection between your spouse and the new home. If you make the purchase using money from a joint account, it can create legal hangups that could give the other party legal claim to the property.
Therefore, it’s best to separate bank accounts as soon as possible and make sure all of your payments are going into your account, not a joint account. If you write a check for a downpayment from a joint account, it could give your spouse legal rights to the property.
Make sure you are using only your money so that, if ownership of the new property is contested, you can legally prove that you, and only you, paid for the property. This is not to create a new point of contention in the divorce; it’s simply to protect yourself and make sure you have a comfortable home to restart your life.
Make Sure the Home You Purchase is Listed as a Separate Property
This is tied to the tip above because it relates to the sole ownership of your home. While it might seem obvious, this is a step that can be overlooked, so be meticulous and make sure everyone involved in the process understands that the home should be listed as a separate property. Make sure your spouse’s name is not listed as a potential owner.
Most states use a concept called “equitable division” to divide the property in a marriage. With this system, the property is essentially divided down the middle, with the goal of creating as equal a divide as possible. With equitable division, all property listed with the marriage is considered, and if your spouses name is on the paperwork for the new home, it could get pulled into the equitable division process, even if it belongs to you.
In many cases, simply not having the name of your spouse on the document won’t be enough; make sure the property agreement specifically states that your spouse does not have a legal claim to your property.
Complete the Separation/Divorce Settlement Agreement as Soon as Possible
Finally, you want to make sure the divorce settlement agreement is completed as soon as possible. While you don’t want to rush anything, it helps to have this document completed quickly so you can increase your chances of an affordable mortgage. Once the agreement is completed, lenders can see more details and have a better idea into your future financial standing. Once again, it will provide more information, which all lenders love!
Work with a Common-Sense During Your Divorce
If you are going through a divorce, we encourage you to talk with the professional team at San Diego Purchase Loans. We have the knowledge and dedication to help your chances of approval, and we take a common-sense approach to underwriting, which means we go beyond simple numbers to gauge your true creditworthiness.
Find out how we can help you get an affordable mortgage loan, contact us today!
I highly recommend Chad Baker. He does a phenomenal job and won’t trauma you or your clients. He has a whole team that works on the loans. And all the team members are great. He has a person that can translate for your clients that are Chinese. He is as good of a loan officer as you are an agent, and that is what you want when referring clients to a lender.
I was referred to Chad by my Realtor for a purchase of a new house. The experience with Chad and the team (I mainly worked with Juliann) was nothing short of outstanding. From start to finish there were always quick to respond and when needed, notify me of any new documentation that was required. There were very helpful explaining to me the pros and cons of different financing options as well as some other loan related issues, such as termite clearance outside the purchase contact and septic tank certification process. Overall, very knowledgeable and processional team. Loan preapproval was done in a single day and loan documents were ready for signing in 21 days, which was 9 days ahead of schedule. That never happened to me before.
“We’re loving our new place and we’re very pleased with how smoothly everything went through closing. Thanks for keeping us up to date on the possibility of refinancing at a lower rate; we trust your judgement as far as waiting until the rate is around 5% lower before we refinance. We’re very interested in pursuing that if rates drop to that level. Thanks so much for all your help and personal attention!”