Life after a divorce can seem complicated as you figure out where you fit in and how you will now do things alone. Among the largest decisions you will have to make is the decision regarding where you will live. Buying a home after a divorce is not always as simple as it might have been when you purchased your home with your spouse because there are typically more complications that get in the way post-divorce.
Who is Still Responsible for the Original Mortgage?
The first thing to consider is who is still responsible for the original mortgage. If you still own the home you lived in when you were married, chances are you are still responsible for the payments even if you are not the one making them. This can make it difficult to purchase a new home because your credit, debt ratio, and assets are affected.
The new lender is going to look at where your money goes every month by looking at your bank statements, but also on your credit report. Even if you are not the one actively making payments on the mortgage on your old home, but your name is on the mortgage, you are still responsible for those payments. This means that your debt ratio will be greatly impacted and unless you make a lot of money every month, qualifying for two mortgage payments with a debt ratio that fits in line with the Qualified Mortgage Guidelines could be difficult.
Removing Yourself from the Current Mortgage
If you want to purchase a new home after a divorce, you will have to see what you can do to get your name off of the current mortgage. There are a few ways to do this:
- Refinance into the other spouse’s name, taking you off of the loan altogether
- Sell the home, paying the loan off and taking both of you off of the hook for the mortgage
These are the only options as even quit claiming yourself off of the mortgage will not release the liability you have for the home. If your ex-partner were to stop paying the mortgage, you would still be liable. What you would not have is rights to the property regarding what your ex-partner does with it and the profits received from it.
Factors Considered When Buying a Home after a Divorce
Buying a home after a divorce is pretty similar to buying a home before the divorce; however, there are likely new liabilities that come into play. The lender is going to look at every aspect of your financial life, as they did with your original mortgage. This includes:
- Current debts
- Current assets
- Current income
- Employment information
- Credit history
The lender will determine your risk level by determining your credit score and whether or not you pay your debts on time. They will also figure out your debt ratio to see how much of your money goes towards debts every month.
After the divorce, the lender will need to look at the divorce decree to make a decision on your eligibility. The lender will need to determine what you are responsible for paying that might not report on your credit report. A few things include:
- Child support
- Shared liabilities
The divorce decree will document everything you are liable to pay and in what increments. This money will need to get figured into the current debts you listed on your application in order to determine an accurate debt to income ratio.
Waiting is Sometimes Necessary
While it would be nice to jump from your marital home into your bachelor pad, it is not always possible. There are a large number of scenarios that can play out when you try to get approved for a new mortgage. Unless your divorce was clean and simple, chances are you are going to have to wait until you have a significant down payment and are not required to pay the large alimony and/or child support payments.
If your debt to income ratio is too high, you can wait it out to see if you find a higher paying job or take on a second job. You can also wait until you are not required to pay alimony or child support. Every situation is different and will benefit from different changes.
The key factor is that buying a home after a divorce is not as easy as it may seem. Unless you do not owe anything for the divorce and you were able to sell the home right away for a profit, you will have some legwork to do in order to prove your worthiness for a new mortgage.
Justin McHood is America's Mortgage Commentator and has been providing expert mortgage analysis for over 10 years.