Two Mortgage Qualification Factors to Consider in a Divorce
Going through a divorce can be a very stressful experience, which can result in your own future housing needs being overlooked. You can avoid or reduce future housing challenges by analyzing the financial implications of a divorce before it happens.
A concept that can be extremely helpful to all parties is Preapproval Pre-Divorce. A Preapproval Pre-Divorce is a brief analysis of your future mortgage qualification based on post-divorce income and expenses. In most households the home is the biggest asset, and in a divorce, splitting up this asset is an extremely complicated matter. In most situations, one party wants to keep the house while the other wants to be taken off the mortgage, either to remove financial obligation, or to purchase another property. The ability to either retain the home or purchase a new home will be heavily based on your post-divorce income and expenses:
Alimony & Child Support as an Expense
Once a divorce is finalized, the court will appoint an amount required for monthly alimony and child support. From a mortgage qualification standpoint, this amount is treated like any other monthly debt and can dramatically increase your debt-to-income ratio, which is utilized by the majority of mortgage banks to determine loan income qualification.
Alimony & Child Support as Income
For a person who is receiving child support and alimony and would like to utilize this income to purchase or refinance a property, there are some stipulations that must be taken into consideration:
- You must show continuation of the income for a minimum of three years from the close of escrow.
- Alimony – the divorce decree will need to provide the length of time you are receiving alimony.
- Child Support – you will need to provide the age of the children to use child support income to qualify.
Most importantly, you will need to show evidence of receipt of child support or alimony for a minimum of six months before you can use the income to qualify for a loan.
Reviewing the financial implications of a divorce and your ability to purchase or refinance the marital home is a tremendously important aspect of divorce planning. I would highly recommend reviewing these financial implications before the obligations of a divorce become finalized.