Financing a Home after Divorce
It is time to start a new chapter and owning a home can be a reality for those who have gone through a divorce. Take the time to assess the situation and put effort into addressing outstanding issues to improve chances of getting financing for a home after going through a divorce. Answer some basic questions while determining next steps and making financing decisions when it comes to home-ownership as a divorcee today.
Are you ready to buy?
Being approved for a mortgage takes into account many factors, such as a steady income history, relatively low debt-to-income ratio and a good credit score. It may be necessary to take time to improve income streams or pay down debt to qualify for better interest rates and terms on a mortgage loan product. Lenders will want to see that an applicant has been steadily employed for the last two years showing predictable income. Renting may be necessary for a period in order to develop a work history, reduce outstanding debt or address any other issues that may make it less likely for a lender to approve an applicant for a mortgage loan.
Did your credit take a hit?
Credit scores are a determining factor when it comes to getting approved. Those that have paid off bills jointly may need to review their personal credit histories and take action. Get a free credit report before applying for a mortgage loan. Late fees, bills that recently went unpaid and new delinquencies can impact an individual’s credit score. Take steps to close any joint credit accounts and pay off joint auto loans. In this way, an applicant can improve their credit scores and not allow an ex-spouse’s financial activity to continue to negatively impact their credit score when it comes time to apply.
Do you have a cash reserve?
Financing a home often requires a significant down payment and an additional budget to cover closing costs, moving costs, lawyer’s fees and more. Determine how much can be afforded and how much must be saved in order to meet this additional expense, in addition to paying current expenses. Those that have recently sold a home may want to use part or all of the proceeds to meet the initial financial obligations that comes with buying a new home.
Do you still need the former spouse’s name on the mortgage?
Those who have divorced amicably may choose to reduce potential disruptions in a household and may allow one household member and any children to reside in a home with both names continuing to be on the original mortgage loan. This is a completely reasonable option for some and for many a necessary option for a partner that may need to look for additional work to improve their income stream. It may be necessary to work out how mortgage payments will be made and how proceeds will be split once a home is sold.
Are there still issues up in the air?
It may be necessary to wait some time if child support arrangements, new jobs or other concerns may impact an individual’s future permanent location. In this case, renting may be a better choice than owning while the proverbial dust settles. This allows newly-divorced individuals the time they may need to make sound and informed choices when it comes to the possibility of owning a home and where that home should be located to be most convenient for any employment and child-rearing needs.
Carefully Weigh Mortgage Products
There are many mortgage loan products available and while some may allow a potential home buyer to make a relatively small down payment,the terms and requirements may not suit every person’s situation equally. Those who divorce and have little debt, a high credit score and enough money for a 20 percent down payment may want to apply for a conventional loan. Otherwise, VA loans, FHA loans and USDA loans are other options. Understand which loans may offer a practical means to achieving home-ownership after a divorce.
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Smarter Divorce Solutions
Certified Divorce Financial Analysts (CDFA®) who keep the cost of divorce low, while being committed to a kinder, gentler divorce process for all involved.