As a friend in the industry reminds me every year, “divorce season” is now upon us.
People don’t like to file for divorce around the holidays or during hectic summers, so March turns out to be the peak filing month.
With that said, I am repeating key information that everyone should know about mortgages and divorces.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
Founder/Broker | JVM Lending
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