Thinking of a second mortgage before the divorce? Here are some things that you should know about divorce and mortgages. Mortgages and loans can be complicated and can have many factors when going through a divorce. Why do lenders want to know the details of their divorce? Because everything can change after divorce, and these changes determine when and how loans and mortgages are collected.
The details listed below are elements that lenders want to know:
- Alimony and child support: A spouse can pay alimony or child support. This can affect the monthly debts that the spouse pays and can determine how much they can pay with the loan.
- Asset division: According to CompleteCase, most divorce agreements require a division of assets, such as a savings account. If a lender requires cash reserves or funds available to apply for the loan, this can affect the rating of a loan.
- The final divorce decree: This may require that the property be sold as part of the asset division. The lenders do not want to lend money to properties that will soon go to market after the divorce because they do not make money on the property until several months after the loan closes. Divorces can cause the spouse to buy the property of the other spouse in the separation of assets.
Once you have applied for a divorce and the documents are already in process, this does not prevent you applying for a loan, but many factors can come into play since divorce documents could be drastically altered after the divorce process. This can then change the terms of the loan. If you need to refinance your mortgage, but the paperwork is not completed, and you need to refinance to get the cash to buy from the other spouse, you will want to apply for and close your loan before filing your divorce documents. This is because once the divorce is final, the paperwork may have changed.
What are your options?
At the beginning of the procedure, the initial divorce documents write the separation of the property and the maintenance of the children/spouses. This document is not binding. Any decision made in these documents can be modified before the divorce is finalized by both spouses and/or by a judge. The lender requires the final decree signed by the judge to validate the information of the original loan application.
- Now, if both spouses are in the property loan, but one will keep the property after the divorce is final, then the person leaving the property will sign a claim of resignation leaving aside any property interest. If the loan is not refinanced on behalf of the sole proprietor, then the ex-spouse is still on the mortgage and may still be responsible for the payments, even if they do not have property interests. The debt will continue to be in the spouses’ credit reports and possibly be a determination when buying a new house and requesting a new loan.
- If the spouse who still owns the previous home fails to comply with the loan, the other is still responsible for the payments and must take precautionary measures because this also affects their credit.
- If the name of the ex-spouses is removed from the title, it can not be removed from the mortgage loan documents. Lenders do not allow anyone to be removed from a loan to protect their investment. Anyone can be added to a loan.
To buy a new house after the divorce, the ex-spouse must prove and document that he/she obtains enough income to qualify, not only for a new loan but also to be able to pay the mortgage on the previous house.
Working on the property settlement
An example of a property settlement agreement must provide for the mortgage to remain in place and for the house not to be sold until the children graduate from high school. However, even with such a comprehensive agreement, you still need the services of a professional to review it. This is because most of the time, the mortgage is subject to an adjustment before the event triggers the sale. In most cases, people do not know what kind of mortgage they have, much less the financial impact that it has. By having a professional lawyer who understands mortgages check the copy of the note and the mortgage before the settlement negotiations, you can make sure that the financing of the mortgage does not change drastically in the middle of the course.
Often, it can be confused with the type of mortgage they have and, as a result, their Case Information Statement (CIS) will not be accurate. Many times you may think that they have a fixed term of 30 years when, in fact, it is a global or adjustable mortgage. The best way to make sure you have what you “believe” you have about your mortgage is to present your lawyer with a copy of your Note and Mortgage. If you are not familiar with how to read them, you can send them to your mortgage planner or attorney for analysis.
Benefits of obtaining a credit review
Many times, you may discover that you can not afford to stay in your current residence and that, of course, will impact your approach to the discussions of the agreement. A professional will calculate your income and assets and get what you can afford. Once you know the answer to this, you will be in a better position to negotiate to keep the house or sell it. There are two other great benefits to start with a professional lawyer who understands mortgages months before agreement discussions. One advantage is that you can use information about affordability as a clue to get something else during negotiations. The important thing is to know the financial impact before starting the settlement discussions. Of course, there can also be a significant emotional bond that could cause a problem, so the sooner you discover it, the better for you and your spouse.
Another great benefit is to start with a credit check. Most spouses who are in the process of divorce have their credit destroyed either out of spite or out of ignorance. When you begin the mortgage discussion early and visit a professional to run a credit report, you can find out if there is a problem with your credit that could drastically affect the ability to obtain a new mortgage and, of course, have an effect on monthly payments. Also, when you run a credit report, you can see if the other spouse has executed any of the credit cards without your knowledge. You will not be able to see if they opened any new cards in your name, as the cards with your name attached will appear on your report.