Getting a mortgage after a divorce? There are a lot of common misconceptions surrounding this scenario.
Let’s break this down into categories of considerations.
Credit
People often hear that a divorce will hurt their credit score.
This isn’t entirely accurate as your marital status is not a consideration in the credit scoring algorithms.
However, it is somewhat common for financed bills to go delinquent during the process of a divorce, and that is what drives this misconception.
The worsening payment history that may accompany a divorce is what hurts a score and not the divorce itself. In other words, if all payments and balances are not impacted through a divorce, then it will have no impact on one’s score.
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 your credit score as a financed debt, they’re still taken into account 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, then this could be considered as extra qualifying income provided that it is both court ordered and has been consistently and timely received for the minimum period your loan program requires. 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.
For more information about how credit scores impact your mortgage: Click Here
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