Many people hear that getting divorced will hurt their credit, but that belief isn’t entirely accurate. Let’s break this down into a few key areas to better understand how divorce can affect the mortgage process.
Credit
People often hear that a divorce will hurt their credit score.
This isn’t entirely accurate as credit scoring algorithms do not consider marital status.
However, financed bills can sometimes go delinquent during the divorce process, which drives this misconception.
A worsening payment history that may accompany a divorce hurts a credit score, not the divorce itself.
In short, Correlation is not Causation.
So, if you’re applying for a mortgage after a divorce, understand that your credit can remain strong if bills are paid on time during the process.
Liabilities
Your debt-to-income (DTI) limits the amount you can borrow.
The more monthly liabilities you have, the higher your DTI becomes. In most cases, a lower DTI (available cash flow) is better.
Therefore, the more liabilities you have, the more limited your loan approval amount becomes.
Divorce can introduce additional liabilities (expenses) such as added expense of child support and/or alimony to one of the parties. These impact you in the same way an extra car payment for that same amount would.
Even though child support and alimony don’t appear on a credit report as financed debt, lenders still consider them during the mortgage qualification process after a divorce.
That doesn’t mean you can’t get approved. It simply means your income needs to be able to support your existing expenses, housing costs, and any new obligations.
Income
If you receive court-ordered child support or alimony, it may be considered as qualifying income, provided the payments are court ordered and have been received consistently and on time for the minimum period required by the loan program.
This time period is usually 6 months.
Final Thoughts
In short, getting a mortgage after a divorce is very possible even if there are some extra expenses or credit challenges from the divorce, but you will want to confirm this by requesting a comprehensive pre-approval.
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