By taking strategic simple steps at the beginning of the negotiating process, divorce professionals can empower themselves with specified knowledge by choosing their team of strategic partners wisely.
By Scott Evans, Senior Mortgage Banker
It’s no secret that the last several years in the real estate and lending industry have been challenging. That’s something you know. But what you may not know is how profoundly those challenges are affecting divorcing couples. That’s because mortgage lending rules and guidelines change on a regular basis, sometimes drastically altering the entire mortgage landscape. What this means for a divorcing couple is that determining what possibilities exist and which do not as they relate to future housing needs, is a critical early exercise.
Involving a mortgage financing professional from the onset ensures that the housing needs of both spouses can be fulfilled in any agreement that ultimately becomes finalized. By waiting until after the agreement is finalized, couples risk negotiating a settlement agreement containing legal obligations by one or both clients that cannot be feasibly met from a real estate loan perspective.
Consider the following examples:
Husband Works and Wife has a Job Paying a Modest Salary
The marital settlement agreement stipulates that child support and alimony will be paid by the husband. The plan is for the husband to stay in the existing marital home, and refinance the loan into his name only, leaving the wife to buy a suitable home for her and the children. But because the alimony to be paid by the husband increases his expenses, he does not qualify for the newly structured loan on the family home in his name only; and is therefore unable to refinance the existing loan to remove the wife from that obligation. The wife, on the other hand, could qualify to purchase a new home with her income only, provided that she was removed from the existing house note. Since that isn’t possible, the child support and alimony income she is to receive from the husband would need to be included in her income so that she could qualify for both house notes. But to use that income to qualify, she must have received this income for a minimum of 6 months depending on the loan program. So, in this case she would need to make other housing accommodations (i.e. rent) for a specified period of time until she has a track record of receiving the support payments.
Husband and Wife own a House Together that Appraises for Less Than What They Owe
In this instance, known as an “Upside Down” mortgage, let’s assume that the couple does not have available funds to pay the loan balance down to refinance it; nor can they sell it and write a check for the difference. Let’s also assume that they are both on the mortgage. Under normal circumstances, they would be stuck until one of those situations changed. But today, the federal government has created programs that allow some mortgages to be refinanced for the purpose of removing a co-borrower even if the home is “upside down.” Knowing upfront whether or not this is possible can change the dynamic of the final terms of the divorce settlement agreement.
These examples point to just a couple of situations where a mortgage professional could add significant value early on, which would give greater possibility for a much more suitable outcome. Additionally, if included in the conversation from the beginning, credit can be reviewed early by the mortgage professional so any recommendations can be more tailored to the wants and needs of both parties as to the best way to allocate available funds to any remaining debt, or re-assigned to insure that the housing goals are accomplished.
Scott Evans, CCIM, CRMS has 15 years’ experience as a Senior Mortgage Banker and Branch Manager for LeaderOne Financial. He specializes in working with Divorce Professionals in the metro Atlanta area, helping craft agreements that align with their client’s goals and overall financial objectives.www.familyga.com/divorce