Divorce is one of the main hurdles to home ownership. It can cause credit issues, depletion of assets, and basically wreak havoc in life. So buying or refinancing a home is a challenge to say the least. So that is why we love to have the necessary conversations with parties early. Before often avoidable mistakes are made! Furthermore, these conversations may include providing educational information about mortgage lending after divorcing. Whether prior, during, or post divorce, let’s discuss key strategies and tips to follow.
Tips to Remember During Divorce
- Keep all paperwork – even if you think you don’t need it (See list below!)
- Make Paperwork Organized & Accessible
- Make a change of address list, change everything, & follow up
- Pay all bills on time
- Watch credit card charges
- Prepare early for buying a home – 7 Steps to becoming a homeowner
- Don’t ruin your credit to get back at the ex
- Surround yourself with a trusted team – see “consult professionals” below
- Create new bank & investment accounts
- Check credit bureaus often – many credit mistakes or fraud result from ex-spouses. See credit tips here
- Maximize credit scores – How to build a perfect credit score
- Know what could be required for a mortgage
Keep Paperwork Organized & Easily Accessible
As mentioned above, keep all paperwork if there is any chance of needing it later. It is better to have more than not enough! Keep the following paperwork together as they could be required for a mortgage or something else.
- Separation agreement (all pages)
- Divorce decree (all pages)
- Equitable Distribution – if separate from above documents
- Mortgage closing documents – may save money or time
- Cancelled checks – in case needed to prove mortgage or other key payments made each month (don’t pay by cash!)
- Pictures – before throwing out pictures, see if they can be modified! Ok, not a mortgage thing but good tip!
- Birth certificates – to prove age of children & how long child support, SSI, or similar continues
- Tax returns & W2’s – Even make a copy of prior joint returns & W2’s
- Child support order or revision
- Credit reports – check your credit often
Cancelled Checks Requirement for Divorce
A very common occurrence in the mortgage process is proving one party pays a debt so it may be excluded from the debt ratio. In some states, there are specific instances where cancelled checks are required such as borrowers which are legally separated. Although in NC & some others, cancelled checks are often not required to prove one party is required to pay the mortgage or other debts! Furthermore, most of the time, divorced borrowers are not required to obtain checks though to prove an ex spouse pays a debt. Here are some general rules to go by.
- Separation agreement must state the person responsible for the specific debt
- Debt paid on time
- Cancelled checks are often not required in NC and some other states
- Other states require 12 months of cancelled checks to prove required party paid all 12 payments directly to creditor
- USDA is an exception though. USDA will not allow the exclusion of debts without cancelled checks for 12 months on joint debt
- Divorce decree must state who is the person responsible for the specific debt
- In most instances, cancelled checks are not required. Most loans go solely by the divorce wording
- Debt could still affect borrower’s credit score though
- Additionally, USDA does not allow the exclusion of debts with a divorce decree and no cancelled checks
Consult Professionals to Cross the Bridge
Divorcing is one of the biggest transitions in life and statistically happens over 50% of the time. So it is key to receive assistance or at least advice, from experienced professionals. The obvious is a solid but understanding family attorney. An attorney will handle equitable distribution, deed prep, and provide representation in court. Then a tax professional helps in transitioning a joint household into a single or new joint household. This could include determining tax exemptions and creating an overall tax plan. Additionally an accessible CPA can provide valuable advice throughout the year.
Also, there could be a division of family investments and savings. So a financial advisor provides a new financial plan which meets the new household needs. Often, a sale and/or purchase of a home is necessary. Therefore a quality real estate agent is key. Even if not selling, a realtor could provide the value of the marital home. Other key professionals include handyman, insurance agent, marriage counselor or therapist, pastor, or just a trusting friend.
Each of these professionals are specialists and are great in their field. But keep in mind they are your team and a team should work together. It should start early too! As the mortgage professional, we will offer our expertise in credit and mortgage lending as part of a overall strategy.
Our team has the knowledge necessary for a mortgage strategy, before, during, or after a divorce. First of all, our experience includes refinancing a mortgage to meet equitable distribution requirements. Secondly, we can help refinance an ex-spouse from a joint mortgage. Although, a new mortgage cannot solve all problems caused by a divorce. A casualty may be potentially losing the marital home. So check out these resources to help or call us. We pride ourselves on communication, fast and flawless execution, and ensuring that our customers have an exceptional experience. Additionally, we are available to meet with our clients at their convenience.
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An informative handout to get you started
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