Making Decisions about Your Home
A couple’s home is often their largest asset, and is central to many of the decisions being made throughout the divorce process. What to do with the family home is often one of the more emotionally challenging issues, packed with legal and financial ramifications.
Those who are contemplating a divorce should seek the help of an experienced loan professional as part of their preliminary process to better understand the issues related to their home, including: who can afford the home; how is child/spousal support counted as income; refinancing prior to divorce; income verification if returning to work after period of unemployment; and related documentation required for loan applications.
The loan process has already become more demanding when it comes to documentation, due to increased regulation and oversight of the industry. Required documentation gets even more stringent during divorce.
The most common mistakes people make related to their home when contemplating divorce are:
- Agreeing to terms of separation (which may include decisions about the home) before confirming either party can fulfill them
- Delaying the process of looking into the value of their home to determine if they can afford it and whether to refinance
- Not retaining and organizing all finance related documentation such as tax returns, pay stubs, bank statements, and W-2’s
- Settling for mediocre or inconsistent advice which can add time and unnecessary aggravation to an already stressful process
It is so important for someone facing divorce to assemble a qualified team to help them with all the financial decisions that will need to be made throughout the process. This should include a qualified mortgage professional familiar with this type of loan scenario, a knowledgeable realtor, a financial planner, an estate planner or accountant, and a divorce attorney.
One of the first things that needs to be determined is if one spouse will be able to afford to stay in the home, or whether it is better to sell it outright. This can be an emotional decision for a variety of reasons, especially if there are children involved. Oftentimes, the financial realities of the situation will dictate what needs to happen, and it is better to understand these up front.
Things to consider when making this decision are: the actual value of property; who can afford the property or can qualify for financing; fixing any credit issues; and refinancing prior to filing if able. These are all issues a qualified loan professional can help with.
Refinancing is important to reduce expenses prior to filing for divorce. Otherwise, you will have to wait up to 12-24 months (or longer) until the divorce is finalized as documentation of divorce (a NISI) is required as part of the loan application.
If spousal support is being considered as income to qualify to refinance a loan in MA you will have to show 6 months’ worth of consistent alimony payments. Child support can also be considered income and is valued at up to 125% as it is pretax. If one spouse is returning to work after a period of unemployment, they will need to demonstrate prior consistent employment and documentation that their income will be stable and predictable (i.e. salaried) versus part-time or commission based.
Clients going through divorce are vulnerable and frightened. Especially those who have not handled the finances in the marriage and may be more unprepared and overwhelmed by all the decisions that need to be made. Settling the division of assets, in particular the home is a time consuming process that can go on for over a year. For those real estate and mortgage professionals helping people navigate this process, patience and the ability to be supportive are a must.
If you ever have questions about your mortgage or home financing options, please contact me directly.
This week's content courtesy of
Fairway Independent Mortgage, Newton
Visit us at Fairwayne.com
Copyright (c) 2015 Fairway Independent Mortgage Corporation 60 Wells Avenue Suite 101, Newton MA 02459 NMLS # 2289, Branch license # 15751 / Massachusetts Mortgage Broker and Lender License # MC2289 +
MASSACHUSETTS MORTGAGE LENDER #15751/EQUAL HOUSING LENDER
The material provided in this newsletter is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, we do not make any representations as to its accuracy or completeness and as a result, there is no guarantee it is not without errors.
EQUAL HOUSING LENDER
NMLS # 2289