In Divorce, the house is a risky asset. 

When you purchased your house, by the time you got to the closing table, you had a large stack of documents and numerous consultations that informed you about what you were buying. 

If you had a good realtor, they were your first line of defense. A good realtor looks for things that might affect the future marketability of the house like power lines, a busy street or a bad layout. Once you went under contract, a home inspector provided you with a detailed report about the condition of the house. You may have also received radon, termite, well, septic and stucco reports. 

The bank that you used for financing obtained an appraisal to make sure you weren’t overpaying for the house and a title report to insure there were no other liens on the property. Your insurance agent may have even done their own inspection. 

In divorce, however, almost none of these things happen. The custom in divorce when determining home equity is to obtain an appraisal and mortgage balance statement. But simply subtracting the mortgage balance from the appraised value is an incomplete picture of home equity. 

‘Joan’ was happy and pleasantly surprised to retain the house in her divorce settlement. But before things were finalized, she obtained a home inspection only to find there was a very small crack in the brick mortar that ran from one side of the fireplace to the other. With confirmation from a structural engineer, she learned that the chimney had been slowly pulling away from the house over the 20 plus years they lived there. It had happened so slowly, the small crack went unnoticed, but the $35,000 to $40,000 estimate to fix this didn’t. 

‘Steve’ agreed to keep the house and his soon to be ex wife kept her pension. They executed a quit claim deed as part of the divorce settlement and ‘Steve’ had 90 days post decree to refinance. Since he had great credit and income, he never anticipated any issues with refinancing but the bank did something nobody else thought to do before they signed a settlement agreement. The bank obtained a title report and discovered a state tax lien from his ex wife that wiped out his equity in the house. 
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Costly house issues that will eat up your equity are often things you don’t see as a homeowner living in the house. To get the most complete picture of the house as an asset, if you’re keeping the house, you need to look at the house as if your purchasing it a second time. Do the due diligence necessary to know what you owe, what you own, what you’re getting into, what you’re getting out of and what you’re getting stuck with.   

The attached matrix is a good starting point to see what mortgage programs are available when keeping the house in divorce; the credit score needed, how much equity you can access, child support / alimony documentation and debt ratios. 

Please don't hesitate to reach out to me with specific scenarios or questions. If you're not able to down load, email me at jeff.weaver@amreslending.com and I'll send you back the PDF.  

Divorce situations can sometimes be a sticky situation when trying to obtain mortgage financing. Could an FHA mortgage loan be a solution for you ?

Traditionally, FHA mortgage loans are thought of as the best mortgage options for first time homebuyers. FHA mortgage loans have also been used for homebuyers who might be credit challenged or higher on their debt to income ratios. FHA loans may also be the answer for divorcing clients seeking mortgage financing as well.

FHA mortgage loans are known to allow a lower down payment and lower interest rates. The biggest negative for making use of the FHA insured mortgage loan for most homeowners and buyers is the required FHA mortgage insurance which can make the FHA loan undesirable. Why would a divorcing client with a substantial income or substantial equity in the marital home want to utilize FHA mortgage financing after their divorce? In some cases, it might be their only option.

Here are the top two reasons why an FHA loan might help your divorcing clients obtain mortgage financing in the midst of divorce.

Reason #1

Frank was at the tail end of his divorce settlement and found the perfect home to purchase once his divorce was final. Perfect location close to his children’s school as well as his work commute. Frank had a solid career and a substantial salary along with a large down payment for the new home.  Frank’s one obstacle to homeownership was that he would be paying his ex-wife 40% of his gross salary as maintenance. This put Frank at a 45% debt to income ratio straight out of the gate without even taking into consideration his new monthly housing payment on the new home.

Frank’s best option was to utilize an FHA mortgage in order to move forward with the purchase of his new home. Because alimony/maintenance is a tax deductible liability, FHA mortgage guidelines allow for the 40% maintenance Frank was paying every month to his ex-wife to be considered as a ‘reduction to income’ rather than as a liability which is counted against his income . What makes the difference?








The above chart shows us two scenarios for Frank. The first column shows us that if Frank’s ex-wife is receiving 40% of his income of $12,500 monthly, Frank would only qualify for a monthly housing expense of $625. However, using the benefit of an FHA insured mortgage that allows for the $5,000 paid in monthly maintenance to be a reduction to his income, Frank now afford a monthly housing payment of $3,375.

The drawback to Frank is that the FHA mortgage includes private mortgage insurance regardless as to whether he was putting a full 20% down payment down or not. Looking into the future, if Frank’s monthly maintenance payment was to end , he could always refinance out of the current FHA mortgage into a loan not requiring the mortgage insurance. In Frank’s current situation, utilizing this benefit of a FHA insured mortgage was his best and maybe only option in securing new mortgage financing to purchase his new home.

Reason #2

Sharon was under contract to purchase a newly built home from a local builder. Originally, Sharon’s intent was to purchase the home as a cash buyer but due to certain events during her divorce process, she was forced to seek mortgage financing. Sharon’s only obstacle was income. Her only source of income was maintenance from the divorce.

Sharon’s divorce was finalized just two (2) weeks prior to the scheduled closing of her new home and she needed to document receipt of the awarded maintenance for six (6) months before it would be considered qualified income. Sharon was on the verge of losing not only her new home but the $50,000 she had put down on the home for upgrades.

Even though Sharon was in the position of putting a 50% down payment on the new home purchase, she was not able to qualify for conventional financing  because she was unable to meet the documentation requirements for support income.

Conventional mortgage financing requires that in order to utilize income from support as qualifying income the borrower must be able to document six (6) months of receipt. FHA mortgage guidelines only require the documentation to show three (3) months of receipt.

Fortunately for Sharon, she had received temporary orders prior to the final divorce settlement three months prior. Sharon was able to document the receipt of the required income needed to qualify for her new mortgage utilizing the three month receipt guidelines for FHA insurance mortgages. Again just as in Frank’s situation, Sharon was required to carry FHA mortgage insurance on her new loan even though she put down a 50% down payment. However, once Sharon is able to document the required six (6) months receipt of support, she will be able to refinance her current FHA mortgage to a convention mortgage and eliminate the monthly mortgage insurance.

It is always important to work with an experienced mortgage professional who specializes in working with divorcing clients. As Certified Divorce Lending Professional (CDLP), I can help answer questions and provide excellent advice. 

This is for informational purposes only and not for the purpose of providing legal or tax advice. You should contact an attorney or tax professional to obtain legal and tax advice. Interest rates and fees are estimates provided for informational purposes only, and are subject to market changes. This is not a commitment to lend. Rates change daily – call for current quotations.

With 70% of all divorces in the United States involving real estate, one of the first questions to arise is “Can you transfer a mortgage in a divorce?” The answer is yes and no – depending upon what type of mortgage you have.
There are typically only 3 ways to transfer a mortgage in a divorce:

1. Transfer an assumable mortgage by working with the current lender to approve a qualified individual to take over your current mortgage. Typically, the loan type must be an assumable loan type. Unfortunately, assumable loan types may be challenging to find. Most government loans, FHA and VA are assumable while assumable conventional loans are rare.
2. Refinancing the current mortgage into the name of one spouse only is the most frequent way to transfer ownership in a divorce. An equity buyout is where one spouse refinances the home into their name while taking equity out of the home to payoff the vacating spouse which typically means more favorable interest rates than a standard cash out refinance.
3. Transfer of ownership due to divorce judgement may cause alarm when you see the Due on Sale clause in the loan documents stating that the loan must be paid off when the property sells or ownership is transferred thereby accelerating the loan. However, divorce is an exception to this rule allowing ownership to be transferred to another spouse incident to divorce even if that spouse is not currently on the mortgage.

For more questions regarding the transfer of ownership of the marital home during divorce, contact a Certified Divorce Lending Professional in your area.
It is always important to work with an experienced mortgage professional who specializes in working with divorcing clients. A Certified Divorce Lending Professional (CDLP) can help answer questions and provide excellent advice.

This is for informational purposes only and not for the purpose of providing legal or tax advice. You should contact an attorney or tax professional to obtain legal and tax advice. Interest rates and fees are estimates provided for informational purposes only, and are subject to market changes. This is not a commitment to lend. Rates change daily – call for current quotations.