Going through a divorce is a complicated and tough experience. After going through a divorce, obtaining a mortgage can be a significant step toward establishing a new chapter in your life.
You might be wondering if you will be able to qualify for the purchase of a new home after a divorce. Or you might wonder if you can qualify to take over the mortgage of your marital home.
Getting approved for a mortgage may seem complicated if you didn’t handle the finances or were a stay-at-home mom. You’re not alone, and there are steps you can take to ease the process.
Here are 4 tips that can help you have a plan to qualify for a mortgage after a divorce.
Have or get documentable income.
To qualify for a mortgage, you need to have documentable income. If the money you make isn’t documentable, that income can’t be used in a mortgage application. This can come from things that can be put into the divorce decree, like child support or alimony, or by going back to work.
Structure the divorce decree to support documentable income.
Child support or maintenance payments require proof of receipt for at least six months.
When structuring a divorce decree to demonstrate documentable income, it is crucial to outline the financial arrangements clearly. Specify the frequency and manner of income payments, whether monthly, quarterly, or annually, and whether they will be in direct deposits or checks – cash is never an acceptable form of payment. Including details about any spousal support or child support payments can also be beneficial, as they can be considered as part of your income when applying for a mortgage.
It’s also required to have the right to receive these payments for at least three more years from the closing of the mortgage. State-mandated child support usually ends when the children reach the age of 18. Because of this, the age of the children needs to be under 15 for child support at the time of closing. Learn more about using child support to qualify for a mortgage here.
For example, John and Peggy divorced 1 year ago, with 2 children, aged 12 and 16. John pays child support to Peggy in the amount of $500 per month for each child. Peggy can only use $500 per month in child support on her mortgage application for a child that is 12 years old.
Plan to be back to work.
If you have not worked full-time in the past 6 months, it is necessary to establish a record of full-time employment. If your employment gap is greater than 6 months, you will need 6 months of full-time established for a loan application. Your Mortgage Loan Officer will order a Verification of Employment or VOE to support your time back on the job.
In our example from earlier, John and Peggy are recently divorced. During the marriage, Peggy was a stay-at-home mom for 5 years while they raised children. Peggy just found full-time employment, but for this income to be used to qualify for a home loan, she must work at least 6 months. With the lead time required to approve a mortgage, Peggy can start applying around 5 months.
Understand your credit.
Understanding your credit is important when applying for a mortgage after a divorce. Divorces often can take a toll on a person’s credit score. If this isn’t handled quickly after the divorce, it will affect interest rates on any loan you will take out.
Higher interest rates can create a cycle of higher payments which may take years to remedy. Having a good credit score at the beginning should be a high priority in securing a fresh start.
Remember, the accounts you are responsible for on the divorce decree should be on your credit report. We covered this more in-depth in our tips on what to do to protect your credit and secure a mortgage during the divorce.
There should never be any accounts on your credit report which belong to the ex-spouse. If this is the case, then any late payments made by your ex-spouse will affect your credit score. Divorce decrees do not affect late payments that report on your credit report. If your name is still on the account, it is nearly impossible to remove the late payment.
Find a good Mortgage Loan Officer to pull your credit report and review your accounts. This helps to identify what is needed to get approved for your home loan application.
Continuing our example, Peggy will need to buy a new home after her divorce. She has the money and income but does not have a high enough credit score. By understanding her credit, she was able to realize that her score needed to be increased to obtain a home loan.
Peggy realized the troubled credit accounts were from the ex-spouse. Peggy then made the necessary adjustments to improve her score and qualified for a mortgage.
The current minimum credit score is 600 to qualify for an FHA mortgage. The top tier for credit is 780 on conventional mortgage applications. A mortgage is obtainable with a 600 credit score, but if the best interest rate on the market is your goal, you need a 780 score.
You can obtain a copy of your credit report for free at AnnualCreditReport.com.
Find a good Mortgage Loan Officer (MLO)
Working with a licensed and experienced MLO is crucial when buying or refinancing a home. After a divorce, this becomes even more important. A knowledgeable MLO can help you navigate the complexities of your situation and set you up for success.
In Peggy’s divorce, she got the marital home – but she was concerned if she would qualify for the mortgage independently. Peggy didn’t make the financial decisions during the marriage but is gainfully employed. She only lacks the proper guidance.
Peggy found a good MLO prior to the settlement of the divorce. She was able to make proper requests in the divorce decree to have documentable income. Being that Peggy is gainfully employed, she relied on her MLO to advise her on the next steps. The refinance closed easily due to Peggy being advised by an experienced MLO.
Ask Questions
If you’re going through a divorce, don’t be afraid to ask questions and educate yourself. Ask ALOT of questions, and don’t be afraid to ask the same question multiple times.
Every situation is different and has its own unique wrinkles. A good MLO will be patient and help you understand the process. It’s important to learn so you can make informed decisions.
In conclusion, while divorce can be tough, getting a mortgage after a divorce is possible. Following these tips can help ease the process and help you make informed decisions. Remember, the right MLO can make all the difference in helping you accomplish your goals.