Getting a mortgage after a divorce? There are a lot of common misconceptions surrounding this scenario.
I will attempt to break this down into categories of considerations.
Credit
Consumers commonly hear that a divorce will hurt their credit score.
This is not 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 seeking a mortgage after a divorce, understand that your credit can remain strong if bills are paid on time during the process.
Liabilities
A factor that limits the amount you can borrow is your Debt-to-Income ratio.
The greater your monthly liabilities are, the higher your Debt-to-Income becomes. When it comes to Debt-to-Income, the lower the better in most cases (available cash flow).
Therefore, the more liabilities you have, the more limited your loan approval amount becomes.
A byproduct of many divorce cases is the added expense of child support and/or alimony to one of the parties. These added liabilities (expenses) impact you in the same way an extra car payment for that same amount would.
While child support and alimony are not a financed debt that shows up on your credit report, they are still factored into your ability to qualify for a mortgage after a divorce. So, having this added to your monthly expenses does not mean that you can no longer get a loan, it just means that your income must be able to carry your other expenses, the new home, and the new child support and/or alimony.
Income
If you are the recipient of 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.
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
Click Below and our team will conduct a through review of your loan file, provide scenarios, and advice to help you navigate this transitional time