One of the most significant financial decisions homeowners face when divorcing is what to do with the home and real property. Agreeing on how to handle the mortgage and the house can be a challenge. Especially, without proper guidance from a Certified Divorce Lending Professional (CDLP™), like Mathius ‘Marc’ Gertz.
Depending on circumstances, options are available, such as how the couple financed the property and the vesting of ownership. Other aspects to consider are which spouse will remain in the home, the amount of available equity in the property, credit rating, and accessible income sources for the borrowing spouse.
It is always better to err on the side of caution and avoid making simple mistakes in a divorce because it can be very costly. One way to accomplish this is by working with a Certified Divorce Financial Analysts (CDFA) and a Certified Divorce Lending Professional (CDLP™). Mortgage financing during the divorce process requires an expert team who understands how words and phrasing in a settlement agreement can help or hinder the financial uncoupling.
Here are a few more common financial mistakes:
Mistake #1 -
Say a couple has equity in the home; the spouse keeping the house should first do a cash-out refinance to get part of the money to the vacating spouse. Then obtain a home equity loan to get the remaining money due to the vacating spouse.
In most cases, this may not be the best option; in fact, mortgage underwriting guidelines allow for a better solution. Working with the divorce team and the divorcing couple, the CDLP™ can suggest using specific verbiage in the marital settlement agreement. For example, classifying the refinance as an Equity Buy-Out Rate and Term refinance.
This verbiage benefits the financial uncoupling by allowing access to more equity in the home, usually capped at 80% loan to value with cash-out refinances. For this circumstance, using this verbiage may also qualify for better financing. Underwriting may request seasoning requirements for the borrowing spouse; however, the CDLP™ can identify this concern when vetting the marital home.
Mistake #2 -
Suppose the vacating spouse remains on the current mortgage. In that case, the mortgage payment will be counted against that spouse's debt-to-income ratio and affect the overall ability of the vacating spouse to qualify for future mortgage financing.
In reality, the marital settlement agreement assigns the responsibility of paying an existing debt, classifying the debt as a Court-Ordered Assignment of Debt.
This classification allows the omission of the debt from the borrower's debt-to-income ratio, helping them qualify for a mortgage in their name only per mortgage financing requirements. Also, this classification allows the borrower to remain on the existing mortgage to the marital home.
Putting together the right team before making any decisions regarding the marital house and mortgage finance options is strongly encouraged. A dedicated and tenacious professional divorce team will include the divorce attorney, Certified Divorce Financial Analysts (CDFA), and a Certified Divorce Lending Professional (CDLP™).
Mathius's valuable knowledge and experience with family law, financial and tax planning, real property, and mortgage financing allows him to collaborate better and assist the divorce team and the homeowners. Working with his trusted advisors he helps make the transition of financial uncoupling much more successful for all parties involved.
Mathius can assist both spouses with access to mortgage financing options post-divorce; through integrating Divorce Mortgage Planning into the divorce settlement. This planning allows him to address the impact of the divorce and the ability to obtain future mortgage financing.
Contact Mathius today for your copy of the Divorcing your Mortgage Homeowner Workbook. The guide to credit, real estate, and mortgage financing after divorce. This guide will help you get organized, be prepared, and understand your mortgage financing position. Regardless if you need to refinance the marital home in an Equity Buy-Out situation or prepare to sell and purchase a new home post-divorce.
Marc has 36 years in financial services and 6 years in teaching.
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