Going Through Divorce? 7 Common Mortgage Questions
Divorce means a lot of change — and often a lot of confusion.
That’s especially true if you bring real estate into the mix. Whether you own a home with your ex-spouse or you’re hoping to buy one for your newly single life, real estate (and the mortgages that typically come with it) can muddle things, making it hard to know your best path forward.
Fortunately, we’re here to help. If you’re unsure how to proceed with your mortgage or real estate move in the midst of a divorce or shortly thereafter, see these commonly asked questions below. If you don’t see your question answered, get in touch with an Embrace Home Loans team member or speak to your divorce attorney for more specific guidance.
Common divorce and real estate questions
1. Can I use child support or alimony as income when qualifying for a mortgage?
Technically, you can use child support, spousal support, or alimony as income when qualifying for a mortgage loan. The caveat here is that most lenders want you to have at least a six-month history of receiving these payments before they will count it as income. It may be less if you have a VA loan, so be sure to ask your lender.
In some cases, you may be allowed to move forward with a loan sooner than this — but only if you have a court order stating you’re due alimony or support for at least three years into the future. This really depends on the exact lender and loan program you’re using, though.
2. If my divorce decree says my ex is responsible for our mortgage, will a lender still count it on my application?
If your name is still on the mortgage, then your lender will still consider it when evaluating your application. It will count toward your debt-to-income ratio (DTI) and play a role in how much you qualify for and what your interest rate will be.
Your best bet in this scenario would be to have your ex refinance the mortgage solely in their name. This would remove the loan from your credit report and improve your chances of getting a loan. (Paying off that mortgage might even help your credit score a bit too).
3. Can I refinance my house if my divorce decree says that it is to be sold at some point in the future with the proceeds to be split between myself and my ex?
You can refinance your house into your name, but you will need to buy your spouse out in the process — meaning pay your former spouse their due portion of the equity. This may be possible without adding any additional balance to your loan. In some cases, you may need to do a cash-out refinance to ensure you have enough money to cover your ex’s fair share.
4. Do I still have to pay my mortgage after divorce?
Divorcing your spouse does not excuse you from paying your mortgage — even if they’re the only one living in the house. As long as your name is on the loan, you’ll need to ensure the mortgage is paid on time, every time, or else you risk serious credit damage. Not paying could also lead to foreclosure and problems securing other forms of credit in the future.
5. What happens if my ex doesn’t pay the mortgage?
If your name is on the mortgage and your spouse (or you) doesn’t pay up, you can expect a few things: First, your payments will be reported as late on your credit report. This will hurt your credit score, and you’ll also begin to rack up extra interest on that unpaid balance. Finally, your lender will foreclose on the property — delivering yet another blow to your credit and future financial prospects.
6. What happens if a house goes into foreclosure during a divorce?
If your home is foreclosed on, your lender will take possession of the property, sell it, and force you — or whichever spouse is living in the home — to leave. You’ll be entitled to no portion of the profits, and the foreclosure will remain on your credit report for at least seven years.
7. What happens if all my credit is tied up in my spouse’s? Can I still get a mortgage?
It can be frustrating if all your credit is tied to your spouse’s. If you remove your name from their accounts, you’ll lose all that credit history and payment history — and those account for a large portion of your credit score.
Unfortunately, there’s not much you can do to combat it. In an ideal world, you’d split up your accounts evenly, so both of you come away with a few solid accounts to your name. If this isn’t possible, you’ll have to start building your credit up from square one. This means opening a credit card, making small purchases, and paying it off diligently month after month. If you rent a property, you can also ask your landlord to report your rent payments to credit bureaus. This can help you establish your credit as well.
Divorcing while owning or trying to buy a home can be challenging, so make sure you consult the right professionals. Get in touch with a mortgage office at Embrace Home Loans, hire an experienced divorce attorney, and consult a tax professional, too: If you’re buying or selling a property, it will impact the deductions you’re eligible for on your annual tax returns.