When couples are faced with the realization that their discussions about divorce are becoming a reality, the marital home and how it will be handled are often not in the forefront of the situation. It tends to be put on the back burner while emotions and family dynamics are addressed. This life transition can be overwhelming, scary, and financially complex. As a divorce mortgage planner, I try to take the unknown and bring it to the forefront, providing knowledge and empowerment that lead to better informed decisions. Here are some items that are frequently overlooked and should be considered earlier in the process.
1. What does your current credit look like? When deciding to keep the house, you’ll need to assess your ability to qualify for the new loan that is required to do so. To remove a spouse from a mortgage, the one that will be awarded the home will need to refinance the home into their own name. I suggest to my clients to go to www.annualcreditreport.com to request a copy of your credit report. The government allows one report per year free of charge.
2. Get a home Inspection. Knowing the current condition of the home will give you confidence by understanding exactly what you’re agreeing to own and maintain moving forward. Making sure there are no big-ticket items that will become your responsibility when the house is solely in your name will prevent any expensive surprises. If there are big-ticket items, being aware of them upfront will allow you to include it in your negotiations.
3. Buying now vs. buying later. If you are considering selling the home and using the equity to purchase a new home, it’s important to find out ahead of time what it will take to qualify for the mortgage. If you purchase prior to the settlement and one spouse has filed for the divorce already, there are legal details to keep in mind regarding whose name is on the current mortgage. Speaking with a mortgage professional for guidance is highly recommended.
4. Declutter your home. If you are looking to sell the marital home, it is imperative that you meet with a realtor who is financially neutral and fully understands your situation. Look for a CDRE (Certified Divorce Real Estate Expert) to help in this situation. It will be beneficial to have a professional to guide you through the process and make sure that all the communication goes to both you and your spouse. The realtor will help determine spaces that should be decluttered and where there may be obvious gaps. If a spouse has moved out of the home, you do not want it to be apparent that a divorce is underway, and you might need to strategically fill some empty space.
5. Understanding your options with a qualified mortgage lender. I often have people come to me post-divorce with their final settlement agreement, and I’m unable to carry out the court order because they do not qualify to do so. If you take nothing else from my message, please be sure to receive this: It is critical to meet with a mortgage lender who understands the divorce process and can help you with a mortgage loan if necessary. I am trained as a Certified Divorce Lending Professional, which gives me insight to the legal process, timelines, and qualifications based on post-divorce income and expense.
6. Getting a Comparative Market Analysis (CMA). When a couple is looking to fill out a marital balance sheet, they will be asked what the home is worth. Meeting with a qualified agent to help assess this value can save you time and money. This is a cost-effective way to get a snapshot of what the current value is. Doing this will also help when assessing the current equity in the home and how it may be distributed.
7. Knowing the POST-divorce cost of your homeowners insurance. This is another area that is often completely overlooked. When one of the spouses leaves the home, they might also take cars or other insured items that give married couples a group discount on homeowners insurance. Once the home is in one of your names—just like the mortgage—it is underwritten again by the insurance company, and a new premium is given. This is based on many criteria and can increase in price. It’s a good idea to know that upfront so you are aware of what this adds to your house payment post-divorce.
8. Know your options when dividing the house. There are really three ways to divide the house. The home cannot be split in half with a saw, so to speak. The couple may decide that the home will be sold, and they will split the proceeds. The couple may decide that one person will stay in the home, and they will “buy out” the other spouse’s equity interest. In this scenario, the other spouse is removed from title, as well as the mortgage liability. Lastly, the couple will decide that one person will keep the house, and they will either sell or refinance in the future. The third option is not recommended, as it leaves the couple financially tied to each other which can easily result in future conflict. If one person keeps the house and both spouses are on the mortgage, one missed payment negatively affects both parties.
9. What to include in “qualified income.” In the mortgage world, we consider and utilize what is called “qualified income.” This is income that has been received for a certain amount of time and considered stable and continuous. Not all income that goes into your bank account can be considered “qualified.” It is best to meet with a divorce mortgage planner to review all income sources, pre- and post-divorce, to determine income eligibility.
10. Surround yourself with high caliber professionals who understand divorce. This is my ultimate take-home message. Make sure you are getting guidance from various divorce professionals, and not relying solely on your attorney to answer all your questions. Your attorney/mediator is there to guide you through the legal process. They cannot act as a therapist, financial advisor, mortgage professional or realtor. Having a well-vetted divorce team that can collaborate and execute to make sure you are getting the best possible settlement is critical to a successful divorce. Having a team on your side will save you frustration and money. Knowing all your options can bring you knowledge and peace to help you make the best decisions during your negotiations.
Hopefully these tips are helpful and will guide you when going through this difficult life transition. Speaking from experience, I can tell you that it’s a journey, and you will get to the other side. Be sure to make self-care a priority. Just as we learn when we fly—we must put the oxygen mask on ourself first before trying to take care of others.