REBUILDING AFTER DIVORCE WITH PARLAY MORTGAGE

Rebuilding After Divorce with Parlay Mortgage

One of the most difficult facets of divorce is determining future living arrangements. Combined with the emotional turmoil that accompanies the end of a marriage, you have likely found yourself in the midst of a very complicated process. Sitting down to discuss your financial situation with your ex may very well be the last thing you want to do right now, especially if you are feeling intimidated by the weight of this decision. If you have children together, you are probably thinking of them just as much as yourself as you both contemplate who will live where. You might also be wondering what you will be able to afford as a newly single person, and how to go about figuring that out. Understandably, this is a very sensitive time. Fortunately, with the right team behind you, steps can be taken to make this complicated process a little bit easier.

Step 1 - Identify the problems.

The arrival of divorce can uncover a myriad of issues between spouses, but regarding living arrangements, we typically see three main problems that require the attention and care of both parties.

·      Many people are not aware of the fact that joint credit accounts are not separated by the court; they are separated by the individual creditors. These accounts need to be managed in a way that is agreeable for everyone involved.

·      One spouse is likely to retain the home (often legally termed the “marital residence”).  If both spouses are listed on the mortgage, a refinance can be ordered by the court to have the other spouse removed and relieved from the financial responsibility.

·      The vacating spouse will be in search of a new residence.

Note – The problems associated with living arrangements post-divorce generally follow these guidelines. There are cases where both spouses mutually agree that they no longer want to be associated with the marital residence, in which case they will both require a new residence. The key is to identify the problems that are unique to your situation in order to find the best solutions.

Step 2 - Pull credit for both spouses and assess joint credit accounts.

·      Joint credit accounts are owned by both parties and likewise, affect the credit of both parties. This includes old, dormant accounts. Even if they are paid down completely and not currently in use, these accounts are still active.

·      Although unfortunate, in many cases of divorce, one or both spouses may aim to financially harm the other throughout the process. Dormant credit card accounts can be reawakened with as little as a phone call requesting a new card. Keeping a close eye on the activity of all your accounts during this process could save yourself a headache down the road.

·      Accounts that are shared can be terminated if they are no longer needed, or one spouse or the other can be removed from accounts that they no longer want to be financially responsible for outside of the marriage. Managing these accounts early is essential to a future of peaceful financial independence.

Step 3 – This occurs in two parts. One spouse will need to refinance their home to remove the other from the mortgage, and the other spouse will require a new residence.

I am the spouse in need of a refinance. What do I do?

Contact a local mortgage lender. Openly discuss your financial situation and figure out what you qualify for (and are comfortable with paying in regards to a monthly payment) as a newly single person.

Depending on the situation, you can refinance before or after the divorce is settled. If the refinance is court-ordered and the marital residence was jointly owned for over a year, then it is possible to pull equity out of the home through a cash-out refinance. Under these circumstances, you can do this without being subjected to the higher interest rate typically associated with a cash-out refinance.

A limited cash-out refinance occurs when one owner must buy out the interest that the other owner has in the home (in the case of divorce or dissolution of a domestic partnership) and the property was jointly owned for at least a year before the disbursement date of the newly refinanced mortgage loan. The spouse that is buying out the interest of the other spouse may not receive any of the proceeds from the refinance. They must also be able to qualify for the mortgage under specific guidelines. Both parties must sign a written agreement that states the terms of the property transfer in addition to the nature in which the proceeds from the refinance transaction will be used. Unless the property was recently inherited, then documentation must also be provided to prove that the property was jointly owner for over a year.*

I am the spouse in need a new residence. What do I do?

After thoroughly examining your financial situation, you may have decided to rent. If so, it is a good idea to get in touch with a realtor that can show you some rental properties and help you decide on living arrangements that are best for you.

If you have decided to purchase a home, contact a local mortgage lender. Ideally, they will be able to help you figure out what you can afford (in terms of a monthly mortgage payment) and the size of the loan you qualify for.

Per Fannie Mae guidelines, the spouse retaining the marital residence does not have to remove the vacating spouse from the mortgage in order for the vacating spouse to exclude this debt from their debt-to-income ratio. In other words, you will not have to report your old mortgage as a monthly expense when attempting to qualify for a new mortgage. As long as the divorce decree states that the spouse who is retaining the marital residence is fully obligated to pay all expenses related to that residence (including the monthly mortgage payment), you may freely purchase a home without being negatively affected by your previous mortgage. In the event that your mortgage payment has been assigned to your ex by the court but you have not been released from this debt by the creditor, you have a contingent liability. The lender is not required to count this contingent liability as part of the borrower’s monthly expenses.*

Note – Parlay Mortgage has personally dealt with the aforementioned circumstance and can assist you with this process.

A Word on Spousal Support and Child Support

In regards to conventional loans, spousal support and child support may be used as qualifying income with the following documentation:

·      A copy of the divorce decree or separation agreement that indicates the amount, frequency, and longevity of support payments.

·      Any type of written legal agreement or court decree that indicates the amount, frequency, and longevity of support payments.

·      Documentation that verifies applicable state laws which mandate spousal support, child support, or maintenance payments, and specifies the conditions under which these payments must be made.

·      Documentation that verifies the receipt of at least the most recent six months of full, scheduled payments.

Additionally, the history and schedule of the payments must be analyzed before it is determined to be stable, qualifying income. To be considered stable income, full, regularly scheduled, and timely payments must have been received for at least six months. Income received for less than six months, income received in partial payments, or income that is received sporadically will not be considered stable income.

*Starred paragraphs indicate that the information within them has been summarized from Fannie Mae’s guidelines. Fannie Mae is the largest participant in the secondary market that purchases mortgage loans from lenders, groups them together, and sells them in smaller portions as mortgage-backed securities (MBS).

This blog post has been brought to you by Parlay Mortgage & Property, Inc. Parlay Mortgage is a local mortgage lender in Lockport, Illinois. We are licensed in Illinois and Indiana, offering loans for both purchases and refinances. Any questions or concerns regarding rebuilding your financial and domestic affairs after divorce can be directed to our office.

Madison Jones

Parlay Mortgage & Property, Inc.

16612 W. 159th Street, Suite 201 | Lockport, IL 60441

Corporate NMLS # 218753 | IL License # MB.6760430 | IN License # 218753

Office: 815-838-6613 | E-mail [email protected]

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