Mortgages & Divorce: How to Navigate the Process

If you’re a homeowner who is going through a divorce, it’s important to work with a knowledgeable lender who can determine the best mortgage option for your financial future.

As someone who works regularly with divorcing homeowners, the top question I hear from my clients is: “Can I keep my home after the divorce?”

The ultimate answer to this question depends on each person’s unique situation. But, in many cases, if you consult with me very early in the divorce proceedings (or even before the divorce has been filed), it is more likely that you will be able to stay in your current home, if you wish to do so.

If you are currently going through a divorce or anticipate that you will be soon, explore your homeownership options as soon as possible. Let’s look at some of the common questions homeowners have when experiencing a divorce…

I’m divorcing but I want to refinance the loan and stay in my home — do I qualify?

Again, the answer to this question will depend on a variety of factors. Here are some things to consider:

Your assets (not just your income) will help you qualify for a loan.

For instance, when the divorce is finalized, you may qualify for spousal support (alimony) and possibly child support. Also, you may have access to retirement accounts, savings accounts, and other investments that were tied to either you or your spouse during your marriage. A lender will consider these various forms of “income” when determining whether you qualify for a new loan. Even if you are not working at the time of your divorce and your spouse is the sole breadwinner, you may still qualify for a new mortgage, based on all your assets.

Consider your overall financial “health.”

Even if you qualify for a refinance, your new monthly mortgage payment may be more than you are comfortable paying by yourself (making you feel “house broke” every month). So, it important to work with your loan originator to consider the maximum realistic amount you want to pay each month. This will help you determine if a refinance is worth it, or if you would feel more comfortable moving to a home with smaller mortgage payments.

What are the other options for my home after a divorce?

Aside from refinancing, you have several options.

One spouse buys out the other spouse’s share of the home equity.

Even if you don’t have enough cash to buy out your spouse’s portion of the home’s equity, you might consider a home equity loan or HELOC as an alternative. This allows you to keep the original mortgage payment, and you’d have a second mortgage payment to pay off the home equity loan or HELOC. This might be a better option than a refinance if you have a very low interest rate on your existing mortgage.

One spouse stays in the home with the existing mortgage (and both spouses are still listed as borrowers on the loan).

This can be a very risky option, depending on the nature of the relationship between former spouses. In this situation, both parties would be liable for monthly payments on the existing mortgage, even though one spouse no longer resides in the home.

An instance where this agreement may work well is when former spouses have an amicable split, and children are involved. In this case, the spouses may work together to ensure that the children stay in the same home, within the same school district.

If you decide that this is the most favorable option for your situation, you must come to an agreement with your former spouse on the amount each of you will pay toward the mortgage every month. And, of course, these details should be outlined in your divorce agreement — to ensure that there is a legal document holding all parties accountable to the decision.

You sell the home and split the proceeds with your former spouse.

Obviously, this is self-explanatory. If neither spouse wants to remain in the home, this is the best option to give them the finances they need to move forward with other plans.

I have debt (besides my mortgage) — is there any chance I can keep my home after my divorce?

This is another situation where it’s immensely beneficial to work with a mortgage expert early in your divorce process (or even before the divorce proceedings are in motion). Even if you have significant debt, you may still qualify for a refinance.

For example, I had a customer who was in the process of divorcing, and who had considerable credit card debt. After talking with me, this customer learned that she could consolidate her credit card and mortgage debt into one new loan. With this plan, she was able to refinance her mortgage, save a significant amount of money on interest, and stay in her home after the divorce.

Does child support count as “income” toward my home refinance or purchase?

Short answer: in most cases, yes.

One thing to keep in mind is that child support has very specific rules regarding how it can be used as qualifying income for a mortgage.

Mortgage experts sometimes refer to this as the “6-36 rule.” It means that you must collect child support for at least six months before it’s considered part of your “income.” Also, there must be a plan for you to collect it for a minimum of 36 consecutive months.

So, for instance, if you’ve just recently divorced and you’ve only been collecting child support for five months, you won’t be able to use that as qualifying income toward a mortgage loan until the next (sixth) month.

Also, let’s say you have a 16-year-old child, and you will only be collecting child support payments for that child for the next two years (until he turns 18). This money will not be considered viable income toward qualifying for a mortgage, because you will collect it for less than 36 months.

I have more questions about how my divorce will impact my mortgage. Where do I find answers?

As a loan originator who specializes in divorce situations, I would be happy to offer you a complimentary consultation. Because I’ve earned my Certified Divorce Lending Professional (CDLP?) certification and have worked with many divorcing homeowners over the years, I’m very familiar with the options you have — and can help you identify the best mortgage solution for your situation.

Of course, it’s also essential to seek the guidance of law experts and tax professionals during a divorce. Having a full team of experts on your side will help you make the best decisions for your financial future.

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