How does a Separation or a Divorce affect your Mortgage?
It is a very difficult time going through a separation or divorce especially if you have children. Your home is your most valuable asset and stability for your children. Decisions regarding possession, division of equity and liability for repayment of the mortgage loan are all tied together. Once your relationship has come to an end there are two basic options: one, is to sell your property, split the proceeds and go your separate ways; or two, is for one of you to keep the home.
Do you buyout your spouse and keep the house?
In a buyout the person who remains in the home refinances the mortgage and pays the other spouse his share of the equity. A Separation Agreement may specify that one spouse make the mortgage payments, but if both spouses’ names are on the mortgage, both are liable even if the paying spouse defaults on the loan. Also do not assume that because you transferred title to the property to the other that you have been released from your mortgage obligations. Make sure to get a release or letter from the bank releasing you of your obligation.
The person who chooses to remain in the home can either assume the mortgage or refinance the home in their sole name. As your mortgage professional I will find out your options on your existing mortgage as not all mortgages are assumable or if you decide to refinance I will work with you to meet the credit and income requirements to qualify you for that new mortgage. Let me do the homework for you to find out what works best for your situation.
Reapplying for that Mortgage
After a separation or divorce, you must provide the lender with your Separation Agreement or Order if you have one. You may also be required to have an appraisal or valuation of your property done. You will have to prove to the lender that you are capable of covering the mortgage payments on your own, without the help of your spouse because the lender is under no obligation to remove the other from the mortgage unless you can demonstrate you can afford the payments on your own. Even if you do qualify for a mortgage on your own you may want to consider borrowing more in order to buyout your spouse. Spousal and child support will also impact your mortgage qualifications so you will have to consult with me, your mortgage professional, to determine your specific situation.
If you plan on keeping your home or purchasing a new home, get a mortgage pre-approval to see how much you can afford to spend. It is likely you will have a good down payment for your next home if you have enough equity in your previous home and you receive funds from either the sale or a buyout. As a mortgage professional I will analyze your situation in detail to get you the best financing that suites your needs.
A separation or divorce can get very messy. Try to keep your credit rating as clean as possible during this difficult time. Joint debts during your relationship are considered to be the responsibility of both parties. Even if the other person is responsible for that debt during your separation and they miss a payment your credit rating could be affected. Make sure any joint debts are handled in a timely fashion. Try to close all joint accounts and credit cards. Put a freeze on any accounts you cannot close and try to make the minimum payment in the meantime until you can transfer the joint debt to the other or pay it out.
If you do not have a credit history, it is important that you start to establish one independently of your spouse. Begin by applying for your own credit card, even if it’s for a small amount of credit and make sure you make your minimum payment on time. I can help you with getting a credit card through our Dominion Lending Centres. We have a variety of different cards that suites your needs.
Bad credit? Let me work with you to help you improve your credit score before applying for a mortgage.
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