8 Ways A Divorce Affects Buying A Home

Divorces Surge During COVID

Divorces are surging as a result of the COVID-crisis.

Online inquiries have jumped over 30%, according to this column, and filings themselves have jumped 34% year over year.

Apparently, couples need to spend much less time together if they want to have a happy marriage. 😊

Here is a short New York Post article by a psychologist that explains why the COVID-crisis and lockdowns led to so many divorces.

Anyway – divorces have a significant effect on both real estate and mortgages because they can easily kill deals and make qualifying for mortgages much more difficult.

A pending divorce is also a signal that there is a 50% likelihood that the couple’s property will sell within the next 12 months.

8 Ways A Divorce Affects Buying A Home

Here is some key information in regard to divorces that all of us should keep in mind:

1. A divorcing spouse can quit-claim off title, but NOT off the loan. The only way a spouse can get “off a loan” is with a full refinance. Many spouses mistakenly believe they are “off the hook” once they are off title, but that is not the case; spouses are obligated to pay the mortgage whether they are on title or not in most cases.
2. If a spouse wants to buy a new home before the divorce is finalized, the non-buying spouse must sign a quit-claim. Hence, it is important that the spouses are “cordial” before one spouse starts house-shopping. Otherwise, the deal will die if an unfriendly spouse refuses to sign the quit-claim.
3. We need a court-ordered payment history before we can use spousal support income of any kind. Fannie and Freddie require six months, and FHA requires 12 months. A history of voluntary (not court-ordered) payments will not work in most cases.
4. We need three years of future payments before we can use spousal support to qualify. For example, if a spouse only gets child support that will end when the kids are 18, we cannot use the income if the kids are 16 and 17.
5. Once lenders find out about a pending divorce, transactions cannot close until they receive a court-approved settlement agreement. Sometimes borrowers try to hide divorces but that opens up questions as to why they want cash out, or are buying another home.
6. Divorcing spouses can hire private judges to expedite settlements in order to close mortgages sooner. This can cost as little as $500 in some cases. Expedited settlements are often necessary simply to close a transaction when marital debts are excessive, when support obligations or benefits are unknown (and underwriters need to know), or when a spouse refuses to quit-claim.
7. Increasing a mortgage to buy out a spouse is not considered “cash out” as long as all cash proceeds go to the spouse getting bought out. This rule allows for higher loan-to-value limits and better loan terms.
8. Spouses must account for all marital debt when qualifying unless there is a court order or decree specifically stating which spouse is responsible for which debt.

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Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167