Mortgage underwriting practices have tightened considerably over the last several years. Lenders require detailed financial records before issuing a loan.
This can be a challenge if you are going through a divorce or are already divorced.
Documentation is key to understanding how divorce affects the ability to qualify for a mortgage in Gwinnett County.
Your income and credit history are two key factors in qualifying for a mortgage loan. Up until now, you and your spouse have shared that history. In order to secure a new loan, you will need to demonstrate to the lender that you qualify on your own.
Written documentation like your divorce decree, bank statements and other financial records are critical to obtaining a new home loan.
Your divorce decree should have clear language about each party’s financial obligations. This is why having an experienced family law attorney is necessary to avoid major problems in the future.
Provide a copy of the entire divorce decree to your prospective lender. Be sure to include all the pages.
The lender will be looking for undisclosed financial obligations that won’t appear on your credit report. This can include child support or spousal support that is paid or received by you.
If you are named on a mortgage with a spouse your divorce decree will need to make it clear who has been awarded the house as part of the settlement or final order. You may also need proof from your ex-spouse such as bank statements or cancelled checks that demonstrate they are responsible for that mortgage.
Be sure to close all joint bank accounts. If your ex-spouse is awarded the house and pays the mortgage from a joint bank account with your name on it, it may be unclear to your prospective lender that you are not responsible for this mortgage.
If the divorce settlement requires your ex-spouse to pay a mortgage on which you are still named consider asking your ex-spouse to refinance the loan without you on it. This can be achieved as a part of the divorce process, if handled correctly.
If your ex-spouse is awarded the house and decides to refinance, be sure to obtain a copy of the HUD closing statement in case it is requested by your new lender.
Any joint debt obligations will be factored into your new loan application. This includes credit cards and car loans.
If your former spouse is required to assume these obligations as part of the divorce settlement be sure to obtain 12 months of bank statements or cancelled checks to remove these liabilities from your history.
ALIMONY AND CHILD SUPPORT
If you are the spouse paying alimony or child support, your borrowing ability may be weaker since your income will be reduced. If you are awarded alimony or child support be careful how you receive this support.
Mortgage lenders will consider child and spousal support as income and this can strengthen your loan application.
Keep in mind that mortgage lenders generally require a court order obligating child support or spousal support for three years before they will count it as income.
Lenders may require that payments be received for three to twelve months, in full and on time, before will consider this as income to approve a mortgage.
However, you may negatively affect your ability to qualify for a mortgage if you receive the support as cash or via direct transfer from your ex-spouse’s bank account.
Mortgage companies require proof of income. Cash or direct deposit may not provide adequate documentation. Without a paper trail the mortgage lender cannot count support as income. Without sufficient verifiable income you may not qualify for a mortgage.
WHAT YOU CAN DO
There are some things you can do if you find yourself in this situation.
- Have your support payments sent directly to the state. This may delay your receipt of payment but it will create a traceable record;
- Only accept a check for support. Keep a copy and a record of each check you receive;
- Make sure your divorce decree clearly states that you have been awarded spousal and/or child support.
An experienced divorce attorney can ensure your divorce decree contains unambiguous language that specifies the financial support you have been awarded.
The attorneys at Oxendine & Sauls, LP are here to help you navigate the divorce process.