Mortgages and Divorces: A Trial of Patience, a Trail of Paper
July 1, 1997
Broken marriages are plentiful, and you're sure to get your fair share of prospects who have tangled financial histories resulting from a previous marriage.
You may have to tap into your patience and spend some extra time counseling prospects about such things as fessing up to late payment histories, explaining blotches on their credit histories, and proving what they owe and own.
But experienced real estate pros and mortgage lenders say trying to get a mortgage for your divorced prospects doesn't have to be traumatic. And for most people, it won't be--so long as they're honest and up-front about the details of their finances.
Those details can make or break the sale, and prospects many times keep them from a real estate practitioner. "As much as people trust me, they're sometimes reluctant to discuss the intimate details of their finances," says Michelle Edison, real estate broker with RE/MAX-Anasazi Realty, Tempe, Ariz. "But they'll discuss them with a mortgage broker."
As a matter of policy, Edison asks all buyers to prequalify with a lender before shopping for homes. "The lender won't sugarcoat the situation but will take a look at their financial obligations and let them know what they can afford. Then we get in the car and drive around. I have a strong record of having buyers who qualify for loans," she says.
Clearing Extra Hurdles
"We do have more issues to address with someone who's divorced," says Betty Wright, vice president at NationsBanc Mortgage Corp., Charlotte, N.C. "It's usually a matter of more documentation and paperwork to satisfy any questions that might arise from assertions about income and financial liability."
Jay Starks, vice president at Dell America Mortgage, Phoenix, says, "I see a lot of divorced people or people about to be divorced. All debts, including those resulting from a former marriage, need to be addressed."
Divorced applicants must clear the same hurdles as anyone else applying for a mortgage, so the main difference is in the documentation (see "The Burden of Proof"). "We like to see the divorce decree or separation agreement, and know who's responsible for what and how they're going to pay," Starks explains. "When alimony or child support is involved, we look at it like any other debt. And if it's to be considered a source of income, we want to see payment history and reasonable assurance it'll continue."
Rick Adams, a mortgage broker and REALTOR® and owner of Independent Mortgage Service, Corpus Christi, Texas, also says that divorced applicants are treated like anyone else. Once their marital history is known, though, there's more involved to warrant that consideration. "By being involved in a marriage and choosing to dissolve it, a person becomes a different type of borrower, with a different set of criteria--a different burden of proof," he observes. "Even though divorce is common, it always presents unique circumstances."
In such situations, there's work involved in compiling the details and documents that'll allow the lender to make an informed decision. In amicable divorces, it's painless. When the divorce is bitter or contested, however, it can prove an emotional process as the applicant again confronts all the reasons for the divorce.
Jan Barnes, associate broker, Century 21--Stone and Associates, Leonardtown, Md., advises patience: "As long as you've got a seller and a lender who are willing to work with them, it can all come out all right. It just takes time."
When the Answer Is No
Some of your prospects will be turned down for a mortgage because of the impact a divorce has had on their credit profile. You can help them into the recovery mode by assessing their present situation and long-term goals and reviewing their options with them. Here are some ways your colleagues say you can help your troubled prospects.
Modify their expectations. How much can they borrow? Show what's available in that price range. They may discover they can live comfortably for less than they thought they had to spend.
Rent now, buy later. If any credit payments were missed or ignored by a married couple, the late payments can work against a divorced applicant. Sometimes the applicant must establish a new personal credit history to qualify for a mortgage. Others leave marriages so burdened with debt that they need time to get back on their feet. In either case, helping buyers find a rental home or apartment now can earn their loyalty when they're ready to purchase.
Refer them to an expert. People whose divorce has left them overburdened with debt may need a consolidation loan or help from a credit counselor. Know beforehand what's available in your area and make an appropriate referral. Agencies include the National Foundation for Consumer Credit, 800/388-2227, or Consumer Credit Counseling Service, 800/350-2227.
Offer advice early. Today's seller is tomorrow's buyer. Couples in the midst of a divorce are often in the process of selling their home. Tactfully tell them how steps taken now can help ensure eligibility for a mortgage once they're single. Without taking sides, advise one or both that their attorneys need to be as specific as possible in any financial document related to the divorce. Suggest they consult a mortgage broker or other lender for insight into what can be done today to help them tomorrow.
The Burden of Proof
Divorced applicants face the same scrutiny as any other applicants for a mortgage. But because their finances can prove a tangled affair, lenders want a few extra documents--a paper trail that paints the whole picture of the applicants' assets and liabilities. Mortgage brokers say these include
- Divorce decree or separation agreement--This binding legal document establishes what property the couple held while married, who owns what now, responsibility for debts, and court-ordered alimony or child care payments. The more details, the better.
- Proof of payment or receipt of alimony or child care--Court records, if applicable; otherwise, canceled checks and bank deposit slips to establish a pattern of compliance.
- Bank and credit card account names, numbers--Standard information for any loan applicant.
- Support documents--Anything that backs up what the applicant says about assets and liabilities in general, and anything specific to the divorce agreement such as property titles and satisfied debts. If an applicant tries to hide something, it'll be revealed in a credit check. Honesty up front serves the interests of all involved.
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