What Happens to the House During a Divorce?
Who gets the house in a divorce? It’s not something you ever want to think about. Could your “forever” bond be broken and leave you without a place to call your own?
Couples facing divorce are confronted with complex emotional, familial and financial issues; usually accompanied by overwhelming stress that can often turn acrimonious. Who will live where and with whom? Who gets what and how it’s all divided become part of the discussion, and major decisions are made that can have long-lasting repercussions. Among the most crucial conversations are those regarding real estate: what happens to the house in a divorce, especially if assets are divided and sold?
For all of those reasons, it is important to understand the implications of the financial agreements you make today, so that you won’t have to endure unexpected consequences later.
When it comes to your home, or future dwellings, the best way to safeguard your financial future is to reach out to a mortgage lender early in the divorce process. There are even mortgage loan officers who have taken additional courses to become Certified Divorce Lending Professionals (CDLP). Their knowledge and experience can set you up for success by offering practical guidance early in the divorce process whether you keep or refinance your home, or will find and purchase a new one.
What happens to the house in a divorce
Depending upon how a home was titled and financed, there are a few different options for settling the property during a divorce. Deciding on the best course of action requires careful consideration of a number of factors:
For example, when children are involved, it’s common for couples to decide that one parent should remain in the home to provide a sense of continuity. While the welfare of the children is obviously a very important consideration during a divorce, sometimes a couple’s best intentions are not supported by the broader financial picture.
When one person retains ownership of the home, it becomes necessary to refinance the original mortgage. This may become problematic since more women than men receive custody of children but also typically lose 25 to 50 percent of their income during a divorce. In this case, they may not qualify to refinance the mortgage on their own, and retaining ownership of the home could be in jeopardy.
Alimony and child support to make up the difference may not be sufficient in the eyes of the lender. Remember, during a divorce, where both parents work, the father is also losing part of his income, so the decision whether to refinance requires a sound understanding of the financial compensation that can be expected and whether it will support a bank’s requirement for the mortgage approval.
Given the complexities associated with refinancing, you might feel that it is best to sell the home outright and split the proceeds, but deciding to sell the home isn’t always as straightforward as it sounds either. For one thing, both partners will need to agree on any offers to sell the home, but even more concerning is the fact that neither may qualify for a new mortgage if the proper protections aren’t established during the divorce proceedings.
There is good news! Many of the issues that would prevent an individual from refinancing or getting a new mortgage can be solved by properly wording your divorce decree. Unfortunately, attorneys are not always aware of the nuances of mortgage financing and aren’t prepared to create an agreement upfront that will satisfy lending requirements and stipulations if either party decides to buy a home or refinance the house later.
This is why a CDLP, or most mortgage lenders, are invaluable if you make that connection during the proceedings rather than after the ink is dry on your divorce decree. Your CDLP Mortgage Lender will even work with professionals, such as attorneys, accountants and real estate agents, to help ensure that documents and decisions support soon-to-be-single couples’ current and future plans for home ownership.
Why Your Divorce Attorney Should Work with a CDLP Mortgage Lender
An attorney’s most important goal is to protect his or her client, but often, language set forth in a divorce decree unknowingly limits an individual from purchasing a home again in the future. There are situations where women, who are solely dependent upon child support for their income, are unable to either gain refinancing for the marital home or to obtain a new mortgage due to the way their financial settlement has been laid forth.
In such a case, when that now single mom applies for refinancing, Fannie Mae requires that she have at least three years of guaranteed steady income and that has to be accounted for in the divorce decree. Sometimes it’s just a matter of the language and it’s a nuanced detail that can be missed or not consider. Children turning 18 before the three-year period is up must also be considered if child support is provided as a source of income on the mortgage application.
When an attorney understands all of the implications up front, he or she can adjust the language of the decree to ensure the representation of a steady three-year income source. Often, something as simple as extending a smaller monthly alimony payment over a three-year period can take the place of child support to help ensure seamless income for the duration the lender deems relevant.
It’s a similar situation if the person staying in the home can make the mortgage payments, but may not qualify for a refinance on paper. In this case, some homeowners will decide to keep both names on the mortgage while the resident of the home remains responsible for making payments. That will probably work until the individual who has left the home, but still has his/her name on the original note, then attempts to buy another property and fails to qualify for additional financing.
Some lenders, such as Fannie Mae or FHA, understand this and will accept a divorce decree as evidence that the borrower is not responsible for payments on the original mortgage, but ensuring that the proper language is explicitly included can be essential for future transactions.
For accountants, there are complexities to understand as well, particularly when working with a couple where one or both individuals own a business. Making sure that clients receive the most from eligible tax breaks is a solid strategy for helping business owners maximize their income. It could, however, hurt them in the case of a divorce as it may prevent them from qualifying for future mortgage financing.
Having all of the professionals on your divorce team sharing information and working in collaboration is a good strategy whether or not there are shared properties to consider.
If there are, having a CDLP Mortgage Loan Officer in your corner can secure your future homeownership plans.
Divorce can be complicated and draining, you shouldn’t have to worry that it could also hinder you’re your plans to move on, especially if those plans include a home of your own.Read More Insights