Mortgage Monday

As the economy weakens and unemployment figures rise, other things start to happen to Americans. They file bankruptcy, lose their savings and get divorced. I am not being doom and gloom here, just pointing out the stats. Since I specialize in residential financing and write about it often, I will focus on the part on buying out your ex- and/or getting a mortgage after divorce. It is not as easy as it used to be.

I recently sat on a panel of lawyers doing a continuing education course in New York. My part was the practical stuff you needed to know about not screwing up your credit, getting your ex off the deed and finding the money to do so. Since, I am thinking as a lawyer here, as well as a mortgage loan officer, I have a lot to say. This is going to be a two-parter- this week- PART I

 1. The day you get divorced or not sooner, your credit is in jeopardy of getting screwed up by your ex. This can be on purpose or circumstance, either way, you need to stop it and control it as fast as you can. First thing, get a free copy of your report and see what is shared, your own or theirs. Close out any accounts which are jointly held or you are partially responsible for. Only keep the accounts that are solely yours. Obviously, you can’t get rid of a car loan/lease or mortgage in a minute, but you can take control of the payments and making sure they are paid on time. These days, one or two 30 day late payments on a mortgage, makes you unmortgageable.  I recommend these two (direct and free) reporting agencies:  www.annualcreditreport.com  or www.myficoscore.com .  Look for the account key in the report to see whose is whose. If you are not sure, call customer service and ask them to go over it with you.  Any accounts that are not held solely by you should be closed- even if your ex is an authorized user.

 2. What if you decide to keep the marital home and buy your spouse out? Often this is done by refinancing the existing mortgage and getting the “cash out” to pay off the ex. The new lender requires a mortgage payment history of the new applicant in order to qualify for a refinance. You would only have the payment history if you were on the note and mortgage.

 Not sure….even if you own the home…..get a copy of the deed. Remember, whoever is on the deed, will typically also be on the mortgage. However, not all property owners will be on the promissory note (only the person who was obligated when applying for the mortgage. If you are not sure, can’t remember or think your ex might be up to no good, ask your attorney (or call a local Title Company) and do a property lien search. This will tell you who owns the home, who signed the note, if there are any judgments or back taxes, etc on the property. Always a good practice!

 3. What proof do you need to provide to the new lender?  When applying for a refi, the new lender will want to see a payment history of the existing mortgage- if it is not in your name at all then there is no history. If the loan is not in your name, then see if the payments were made from a joint checking account- and provide the last 12 months canceled checks. This could also prove good payment history acceptable to the new lender. Why do you want to refinance instead of a purchase? First off the loan is cheaper and easier to do, secondly there is really no contract when doing an equitable distribution of property.

 4. If you are buying out your ex and you just started working (again), will the lender give you a loan?  What type of income history is required?  The bank will look for two years history- at the very least twelve months if the person is a professional- teacher, etc.  There can be a gap in employment with an explanation- I have seen gaps up to two years for “professionals” accepted by lenders. Part time, seasonally work or a new career in sales will not fly. Quite obviously, do not count on doing a no income verification loan- they are few and far between.

 5. You are getting the house in the settlement and want to add your new squeeze to the deed to qualify for a new mortgage. Can this be done?  Yes, but there must be at least one existing person (you) remaining on the deed-with good payment history- in order to make it qualify as a refi. I will assume you still have to pay off the ex, so call it a “cash out” refi. Now adding your new partner onto the deed will require them to sign the mortgage. However, they do not have to be on the loan application and obligated on the promissory note. In addition, a lender might not allow the loan to be approved solely on the financial profile of your new partner; they might require you to qualify on your own and have them as added assurance. Each lender will have their nuances, so check before you begin the process.

Next week is part II of divorce and real estate…..have a question? Send me an email at dale (at) dalesiegel.com  or simply post a comment.