There are almost always mistakes made, in either or both, the drafting and/or the execution of the separation agreement when it comes to complying with mortgage guidelines. This can impact your the mortgage qualification process.
I would step out on a limb and say that this happens in well over half of the divorces finalized.
Have you ever cursed your mortgage lender during the home buying process for asking for excessive documentation or what you deem to be “ridiculous” in order for you to purchase your home? Take that, times 2 or 3, after divorce!
Why? Because your Attorney is an expert in the law, not in mortgage financing.
This gets very complicated, and I want everyone to understand that their divorce and situation is as unique as each of us are as individuals. What works for one, may not and usually does not work for the other, because there are so many variables to consider.
If you need any of the spousal or child support to help you to qualify for your new mortgage, it must be written into the agreement properly and it must be executed by both parties properly. On the flip side, if you are the party paying the support, you need to understand how the amount you are paying will impact your ability to qualify. The way it is written matters!
Correct verbiage and structuring of the separation agreement is critical. By correct, I mean compliant with mortgage guidelines. What may be available as a legal option may not be available as a mortgage option so while your attorney will always make sure you are operating with the laws for your divorce, they likely will not be looking out for your future mortgage loan approval. The problem here is that you will be asked to agree to, and ultimately court ordered to comply with certain mortgage related items in the agreement that you might not be able to accomplish. This is a HUGE issue!
As the receiver of support, are you receiving the support long enough or in an amount that is enough to help you to qualify for the home you are planning to keep or buy? As the payor, are your new monthly support payments going to stop you from being able to finance the home you are keeping or the home you plan to buy once the divorce is final? What about timing? Do you know the timeframe that you have to accomplish this? Is there a timeframe and how is this determined?
Here are the top 3 items we see turn in regards to a mortgage qualification that turn into issues when not written properly into agreements:
- Maintenance ordered but not paid or received for long enough to count as qualified income
- Lump sum payments in lieu of monthly payments
- Debt not allocated in the most beneficial manner
Proper execution of the agreement is also critical and often never discussed during the divorce process. You might be so lucky as to have an attorney that also has a side hustle as a Certified Divorce Lending Professional (CDLP) and keeps up on all the current mortgage guidelines, ensuring that your agreement is worded correctly. (kidding, it’s more likely that they have a CDLP that they work with on your divorce team) Now it is important that you execute the agreement properly so that you are able to show proof during the loan process that you have received the support needed to qualify. You might think this is so silly that couples would not execute a court order but we see it all the time!
Generally speaking, people don’t purposely disregard the court order. The mistakes we see here most often occur when couples are amicable. Believe it or not, there are a LOT of amicable couples out there! When couples are amicable, they are often very loose with their finances and don’t exactly follow the agreement they put in place. This can cause huge issues in the mortgage approval process.
Sometimes people simply don’t properly set up or track the movement of funds for these payments to be counted as qualified income. It’s a matter of not knowing what you don’t know and unless you have an extensive background in Mortgage Underwriting, you likely do not know.
Here are the top 3 items we see turn into issues when an agreement is not executed properly:
- Paying bills in lieu of paying maintenance or child support
- Keeping joint accounts open to funnel support money back and forth
- Paying/receiving different amounts than what is court ordered
To know if your agreement is in line with your goals for future homeownership, you must have a CDLP involved during these early stages of divorce to help you determine qualification under the current guidelines, interest rates and housing parameters. You see, mortgages have guidelines that must be met in order to qualify and while they might not always make sense to many, they are in place for a reason and if you want the money, you simply have to meet them.
Is there a way to properly draft the agreement to fit both parties needs when it comes to a mortgage qualification? Often there is! Once we legally know who is entitled to what, we can work together and move around assets and maintenance so that you are able to accomplish your future goals with homeownership. It is often most advantageous when I am able to work with both parties to determine the best outcome for everyone involved.
Karla Kyte is a Branch Manager and Originating Loan Officer at Cross Country Mortgage. She runs a successful team of high energy loan officers and assistants who are eager to help you through the home-buying process! From day one, over the last 25 years, Karla has built a successful business on referrals, which is why she and her team are committed to educating buyers on their financing choices throughout the process.
In addition to holding a mortgage license, Karla is also a Certified Divorce Lending Professional (CDLP). In all her years of doing mortgages, she could never understand why divorce attorneys did not consult with a lender before they put demands on clients that were not achievable due to lending guidelines. Karla brings financial knowledge and expertise to the often complicated untangling of a marriage. Those facing divorce need a great divorce team that is well versed in all aspects of the process, and a CDLP is a big part of the successful outcome of the divorce, as we help to structure the equity buyout of a retained home as well as the qualification of purchasing a new home.
Karla is a fourth generation Coloradan, married mother of four. When she’s not in the office you can usually find her outdoors hiking, attending numerous sporting events for her two teenage boys, taking in a pool day with friends and family, or honoring her daily yoga practice.
