Divorces Continue To Surge! How They Impact Mortgages And Real Estate
COVID changed everything – including marriage, as many couples realized they didn’t like each other when they had to actually spend time together. 😊
Even Bill Gates is getting a divorce, as we learned recently. I am sure being cooped up in a 66,000 square foot house with another person is enough to drive any couple crazy!
Also, I heard that Gates loves to go clubbing with Bezos now that Bezos is single, so this was probably inevitable.
When googling for info for bad jokes, this article called Crazy Facts About Bill Gates’ House popped up, and boy is it interesting!
More importantly, this is a great segue into important considerations in regard to divorces that divorcing couples, lenders and real estate agents should keep in mind.
9 Ways A Divorce Affects Your Mortgage
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.
9) There is a 50% likelihood that divorcing couples will sell their home in the next 12 months.
This is a reminder for all those listing agents out there looking for more listings. They should call Mr. Gates now to try to tie down that $150 million listing! (3% of $150 million is $4,500,000 – just saying).
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