General Effects of divorce
Emotional and Financial
A divorce legally terminates a marriage between two people. Divorces are often times stressful and painful for everyone involved. A strong relationship has collapsed. This can be an emotional time for both the husband and the wife, the children, grandparents, and relatives.
Financial problems don’t make post-divorce much better. Both parties need to discuss who gets custody of the children, pays for what, gets the house, assets, and so on. Fortunately, there is some light. In this article I’ll discuss how divorces affect mortgatges and refinance opportunities, and how to apply for a new mortgage or refinance. It may not be as hard as you think.
Effects on Mortgages and Refinancing
Effects on mortgage
Getting a loan today is quite difficult. There are endless documents, questions, credit-reports, background checks, divorce records, and so on. And if you are divorced it may be even more complicated. Your mortgage loan officer or banker will request some information regarding the divorce.
The best thing you can do is to be prepared. Here are some great ways to make the process easier:
Preparing for a new mortgage
Get a copy Divorce Decree along with other information about your assets or income. If you and your spouse owe debt on a previously existing home, regardless of who lives there, you need to provide a Mortgage/Divorce Decree stating who owns the home. If you do not own the home, you will need to provide 12 months of canceled checks that proves your spouse is making monthly payments. The payments should not be debited from your joint account, they must come directly out of your spouse’s individual account. Problems may occur if you have joint loans, car loans, credit cards, or anything credit-related. You should get 12 months of checks proving that the loans are in good standing. Even if you transfer interest in the home to your spouse, you may still be on the hook for any outstanding debt. If you owe child alimony, show good standing with the court. If you are owed child alimony for custody of the children, you may be able to use these payments as income. Prepare the documents for your loan officer.
Joint home? Here are your options:
1. Sell the pre-existing home
This may sound quite obvious, but many people forget that they can simply sell the home and walk away. Typically this is always the best option. However, if you are underwater on the home this may be a problem.
Refinancing the home under one person may be a great option. This is defined as a process where one party’s name is removed from the mortgage and their interest in the property is bought out. In this process, lenders will generally allow for the mortgage to be increased by 80% of its total value, though few will even allow an 85% increase.
This allows you and your spouse to fully separate. The loan officer will ensure that this party is worthy of undertaking the loan. This means running a typical credit report, looking at assets, debt, child alimony, and so on. As always, make sure that you can fully support the mortgage if you decide to refinance.
3. Keep the home
You can keep the joint mortgage, but this is typically not suggested. If you have no other options, make sure to protect your credit. If your spouse is living in the home, check that monthly payments are being made. Create a legal agreement of what to do if monthly payments are missed.