Divorce Mortgage Mistakes

Mortgage Insider » Mortgage » Divorce Mortgage Mistakes

Divorce mortgage mistakes can ruin your ability to get another mortgage after your divorce. When I originated and processed mortgages, I worked with many divorcing people. Most have the same concern. What do you do with the current home mortgage and how do you buy another home as a separate person.

First, it doesn’t matter if which one of you moves out of your home, it’s still both your responsibility to pay the mortgage. Moving out does not relieve you of the mortgage payments. During a divorce, mortgage payments are the responsibility of the people on the mortgage note.

Divorce Mortgage Rules

You may be asking, why would I pay for a house I don’t live in anymore? And maybe you and your spouse worked that out. She stays in the home and she is responsible for the payments. But what if she doesn’t pay or pays late. Since you are still on the mortgage, your credit is damaged just as much as hers.

And a quit claim deed does not work here. The quit claim takes you off title but it does not take you off the mortgage. And the mortgage is the one that hurts your credit should something happen. The only way you separate completely when it comes to a home divorce mortgage is by selling or refinancing. If the wife wants to stay and she can afford the payments, she has to refinance and take you off the mortgage.

Do not offer to help the person who is staying in the home qualify for the new refinance by not telling anyone about getting divorced and using both your incomes. That is loan fraud and lenders are making it harder for this to happen.

Until you decide what to do with the home or until the divorce is final, it is a good idea to get a third party involved when it comes to the mortgage payments. An escrow company takes in the money from you and/or your soon to be ex and sends the mortgage payment in on time. That way you have a record of the payment being made by a third party and neither of your credit histories will be hurt.

You can do this with other debt on your credit report. Car loans, credit cards, student loans, or any other installment loan can hurt your credit and keep you from buying a new home.

Divorce Separation Agreement

Second, and just as important, is getting the divorce separation agreement signed off by a judge. The separation agreement breaks out who pays what and for how much. This is important because should your spouse stop paying or contributing to the mortgage payment or any other payments, you can take them back to court and make them fulfill their obligations. That is the problem with verbal agreements. No one can enforce those.

When it comes to buying again or refinancing your current home, you used to be able to buy or refinance without the divorce settlement finalized. As long as the underwriter could see the separation agreement signed off by a judge, they could make a decision on your new mortgage. The underwriter just needed to see what your debt picture is without your spouse.

Now, lenders may require your divorce to be final. So that means you are in limbo on buying a new home or refinancing until your divorce is final. So get that separation agreement worked out. That way you won’t be at risk credit wise while you wait for the divorce to be finalized. Ask that question of your loan officer or broker right away. They can check with different lenders and find out if they require the divorce to be final.

Good Luck and Hang in There!