By Wanda Norge
There are many things to consider when going through a separation or divorce. When mortgage financing is involved, it is really important to work with a Certified Divorce Lending Professional, or CDLP.
Guidelines and documentation requirements vary among lenders based on the type of loan being considered.
Knowing what is required to qualify to retain a home or purchase a new home before, during or after the divorce is a key item in structuring the agreements. Lawyers may not realize how a lender counts “qualifying income” and how long it has to be received or is expected to continue, especially when children are reaching the age of 18 or 19 when payments for child support, maintenance and social security can be reduced or eliminated.
A finalized divorce decree or separation agreement is going to be one of the items a lender will require since it outlines responsibility for current debts, properties, child support, maintenance payments and even refinance closing costs.
The agreement will assign joint debt to one party or the other and the lender will count it against the person assigned. This is a contingent liability since the creditor has not released that party from their obligation. If that joint account is not paid in a timely manner by the person responsible for it, it can impact the other person’s credit scores. Ideally, joint accounts should be frozen and closed out as soon as possible.
If the mortgage is one of those joint accounts assigned to one person, the lender does not have to count that payment against them if proof of transfer of title is obtained.
Typically, the person that wants to remain in the house and buy out the other party may need to be on title for at a specific timeframe prior to the application date of a refinance. However, divorce awarded properties can follow different rules where these timeframes are waived.
Transfer Of The Marital Home
There are ways to transfer the marital home in a divorce, but it will depend on who holds title to the property and if there is a current mortgage associated with it.
Refinancing the current loan to remove one spouse from the loan and title is the most frequently used way of transferring ownership. This equity buyout typically involves a payout to the spouse not staying in the marital home. Cash out limits are based on the available equity.
Assumable loans are possible to transfer between parties but the individual still needs to qualify for it. These are typically FHA or VA, so most conventional loans are not assumable.
Transfer of ownership is possible with various warranty deeds.
Also consult your financial planner, and tax consultant for tax-related impacts.
Wanda Norge is a member of the National Association of Divorce Professionals, Mortgage Consultant, Certified Divorce Lending Professional (CDLP), Equilane Lending, LLC (NMLS: 387869), 15 years experience. Phone: 303-419-6568, email@example.com, www.wandanorge.com. NMLS:280102, MB:100018754