Divorce happens, family dynamics change and one home becomes two. No one anticipates getting divorced, so can you really prepare for circumstance such as divorce? Does preparing lead to a self-fulfilling prophesy? There are those who have pre-nuptials (which is as prepared as you can get), but many couples do not.
Let me offer some practical tips to keep in mind for those who are in the process of divorcing. If you both own the home you live in, one or both of you may decide to rent afterward, or one of you may decide to buy out the other, or both of you may decide to sell the home and each buy a new home. It’s important to keep in mind that lenders look at credit, liquid assets and income, so it will be important to pre-structure your finances so you don’t find out after all the paperwork that you can’t accomplish what you wanted to and exacerbate an already stressful situation.
My suggestions are as follows:
- Credit: Even though there may be anger and hurt and arguments, it will be important to stay on the same page and pay all bills on time, if at all possible. Fighting over who pays what may be a legitimate thing to discuss, but until there is a resolution, try as best as possible to maintain your current credit rating and scores by paying on time. Should you decide to purchase a home, this piece of advice will be a lifesaver.
- Income: Many couples have dual income, and if the earnings are enough to qualify for a mortgage or pay the rent then you have some good options. If one spouse is not currently working, then it may pay to discuss the game plan after divorce, e.g., who will rent, who will buy a new home and how can you both work together to accommodate each other, especially if children are involved. It may be that alimony and child support have to be tweaked, or that one spouse co-signs, or one stays in the house and pays the existing mortgage. If one spouse is not working it is important to note what lenders are looking for in qualifying income.
Some important income guidelines: Alimony, child support or maintenance income may be considered effective if payments are likely to be received consistently for the first three years of the mortgage; the borrower provides the required documentation, which includes a copy of
the final divorce decree, court order or voluntary payment agreement, and the borrower can provide acceptable evidence that payments have been received during the last 12 months, such as canceled checks, deposit slips, tax returns or court records. Note: Periods less than 12 months may be acceptable, provided the lender can adequately document the payer’s ability and willingness to make timely payments. Child support may be “grossed-up” under the same provisions as nontaxable income sources. In some cases, to be considered stable income, full, regular and timely payments must have been received for six months or longer
- Liquidity: Cash is important. You’ll need money for a down payment and closing costs to buy a new home (or to pay rent). When you have liquid easily accessible savings, it’s a bit easier to divide. If you need to sell your home, you’ll have to consider the current real estate market and the need for cash at the same time. If there is an urgent need to separate and move on, you may be forced to sell and take less than you can get if you were able to wait. It may be more prudent to discuss taking an equity line before listing your home so that you have access to cash without having to force a sale at a below market price.
May God assist you in working on and strengthening your marriage, but should it be decided that “it was not meant to be,” I hope this information allows you to mediate for fewer problems and stress in your near future.
By Carl Guzman
Carl Guzman, NMLS# 65291, CPA, is the founder and president of Greenback Capital Mortgage Corp. He is a residential financing expert and a deal maker with over 25 years experience. Carl and his team will help you get the best mortgage financing for your situation, and his advice will save you thousands! www.greenbackcapital.com[email protected]