3 Mortgage Pitfalls to Avoid During a Divorce
A divorce is one of the toughest things a person can undertake. The emotional turmoil caused by a divorce is just one of the burdens you’re forced to face. Financial issues can also cause an enormous strain on your well-being.
Planning ahead and having the right professionals on your side can make the process a little easier. Below are some of the most common mortgage issues individuals face after a divorce.
1. Credit Scores Fall
Divorces are expensive. Unplanned expenses can add up very quickly during a divorce, like paying for an attorney or buying a new car.
It’s common for expenses like these to affect your credit score because now you’re taking out a personal loan, a vehicle loan, or applying for new credit cards to pay for everything.
With your credit utilization increasing because you’re putting all these new expenses on your credit card and taking out new loans, your credit score will go down just as fast.
Credit scores are very important when getting qualified for a mortgage. Low credit scores can get in the way of getting a good interest rate and monthly payment, and it can even prevent you from qualifying at all.
It’s important to talk to a mortgage broker early in the divorce process so they can give you some guidance towards working on your credit score and qualifying for a loan so you’re ready when it comes time to splitting assets and either buying out your spouse or buying a new home.
2. Not Knowing the Value of Your Home
Not knowing the value of your home could cost you. For example, if you think your home is worth $500,000 and you agree to let your spouse take the home based on the $500,000. You later do an appraisal, and the value comes back at $575,000, you would have left a lot of equity on the table that you could have had if you knew the actual value of the home.
Homeowners tend to overvalue or undervalue their home because they use sites like Zillow.com or Realtor.com to get their home valuation. Sites like these use an automated system to value your home and will rarely give you an accurate valuation.
Knowing the value of your home can help you make an informed decision as to whether you should stay in your home or get the cash settlement of the equity after a divorce.
Talking to a mortgage broker early on can help you avoid this pitfall and help you plan accordingly.
3. Employment and Income for Stay-at-Home-Moms
To qualify for a new mortgage on a house, whether you need to refinance to pay off your spouse or need to buy a new home, you will have to show you can afford to pay for the mortgage. Stay-at-home-moms who need to apply for a mortgage after a divorce often run into this issue and don’t qualify for a mortgage because they have no income to show.
Talking to a mortgage broker early in the divorce process should be a priority. They can help you understand what you need to qualify for a mortgage and how to prepare yourself to qualify for it when you need to apply for one.
A divorce can take anywhere between 6 and 15 months to finalize. So it’s important to get some sort of employment as quickly as you can. The best income to show is W-2 employment, but 1099 (self-employment) or having your own business can still get you qualified, as long as you have regular and qualifiable income.
Child support, spousal support, and social security income can also be used to show income as long as you choose to disclose it. For it to count, you need to show 6 months of payments that were already paid. You also need to show that this payment will continue for at least 1 more year. This is important if you have an older child who’s 17 years old and the payments will stop less than 1 year from now when they turn 18.
The best thing a family law attorney can do for their client is provide them with the resources they need early on. Connecting you with a mortgage broker with an understanding of divorces in California can help you plan for you future the right way.
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