Mortgages and Divorce: 4 Things You Need to Know
To help you successfully navigate the divorce process and secure your emotional and financial future, we’re kicking off a new divorce mortgage series featuring advice from Senior Loan Officer Marc Edelstein. This week, we’re covering a few things to keep in mind about your mortgage when going through a divorce.
I’ve been in the mortgage industry for a long time, and while I enjoy helping first-time homebuyers, I take pride in being able to assist everyone along their journey as a homeowner, including clients who are starting new chapters of their lives after going through a divorce.
Because a home is commonly a person’s largest asset, it is crucial that you take as much care of a home during the divorce as you would when you first bought it. As a Certified Divorce Lending Professional (CDLP), I have the financial knowledge and expertise necessary to make sure you’re in a good position after the divorce is final.
In my experience, there have been a few things everyone should know when navigating the divorce process, and while I personally have never been through a divorce, I truly want to help people during this difficult time. I understand the emotional and financial stress it can bring on a family, and I want to share a few things that will help you on your journey.
1. What happens to a mortgage during divorce?
Like any other credit account, your mortgage will have to be maintained as you go through the divorce process. If both spouses are on that mortgage, both are responsible for making that payment every month. Oftentimes, there is some sort of verbal agreement that states who will make the monthly mortgage payment, or that it will be an equal contribution from both parties. The bottom line is, that payment needs to be made and does not go into a suspense status until the divorce is finalized and the court determines what will happen to that home. Make sure you have a plan of action ready before the next bill arrives!
2. What options exist for me?
When dealing with a marital home during a divorce, you and your spouse will have a few options to consider – you can either sell the house, or refinance it under one person’s name.
Whether it be for financial, legal or personal reasons, you and your spouse may have to end up selling the house. The judge and the attorneys will determine what percentage of the proceeds from the sale goes to who, who pays for the closing costs and more. All of this will be explained in the decree on what happens if the house is to be sold.
If the house is to be refinanced by one party or another, the decree will clearly state what happens during that time and if there is marital equity to take care of. In some cases, the spouse refinancing has to buy out the former spouse’s marital equity in the property. After that, it is necessary to refinance to get that other spouse off of the mortgage and the title. While you may have a decree that says you’re getting the house, it’s not as easy as calling up your loan officer to let them know you want your ex off the mortgage and title. In order to remove that former spouse, the loan has to be paid off through a sale or a refinance.
No matter what decision you make, there are a few things to consider before coming to a final agreement. Remember to keep your income, and factors that relate to your children, like school district and friend location, in mind while navigating through the divorce process. While you may have emotional attachment to the house and its memories, we’re here to help you make the best decision for you and your family.
3. What should I do if I’m thinking about getting divorced?
The first thing you should do is meet with a CDLP to talk through your options, receive some guidance that will help put you on the best path for your individual financial situation and discuss the timing of the divorce. We’re here to help you look at your finances and figure out what they allow for. It’s crucial to discuss your housing goals with a lending professional before the divorce is finalized to ensure you’re able to have a smooth transaction after the fact.
It’s also important to keep in mind that If you’re relying on some sort of support as a source of income, there are specific guidelines around that support and whether or not it can be used as income to qualify as a mortgage. Most people – and divorce attorneys – think income is income and it must be able to be used for a mortgage. However, when it comes to support and alimony, there are a couple of rules you need to consider that explain how different kinds of income may, or may not, qualify for a mortgage. Talk to your lender so you know the facts before you refinance or sell your house!
4. Why do I need a CDLP?
If there is a marital home that is part of the divorce, you need that CDLP to be on your divorce team before your divorce is final so there are no mistakes that are made between you and your divorce attorneys because of mortgage guideline misunderstandings. CDLPs are certified through the Divorce Lending Institute and understand how real estate, divorce law, IRS tax law and mortgage financing work together in the divorce process.
The whole reason I got certified is because I started working with more and more divorcing clients, and I kept having them come back to me after the divorce was final with new problems that we had to go back and fix. I’m happy I now know how to position myself to be involved before the divorce is final, so I can prevent these issues from occurring and create a smooth transaction for my clients from day one.
If you’d like to discuss your options with a team of industry professionals, join me and Southeast Michigan Divorce Professionals for our free Removing the Ring Divorce Workshop every month! Our next session is on Saturday, May 5 2018. Learn more here.
If you or someone you know is going through a divorce, please feel free to share this article with them and contact us here. We are happy to answer any questions you have and refer you to one of our CDLPs.