Buying A House After A Divorce
Before setting out on your journey to purchase a new home after a separation or divorce, it’s important to save yourself some time and equip yourself with the proper information and documentation.
In this article, we’ll go over the considerations and steps you need to take if you’re looking to buy a home while in the process of getting divorced or after getting your divorce finalized.
How To Buy A House During A Divorce Or If You’re Legally Separated
It’s natural to want to buy a place of your own as soon as possible and move forward with the next phase of your life after a divorce. Buying a home while legally married but separated from your former spouse is certainly possible, but there’s some extra documentation needed and things to be aware of.
1. Finalize Your Legal Proceedings
First, your lender is going to require your legal separation agreement. If you have a property settlement agreement, they’ll need that as well. This order, finalized and signed by a judge, will tell your lender who’s responsible for what in the divorce. This is important because it can have a big impact on your qualifying debt-to-income ratio (DTI).
2. Figure Out How Much You Can Afford
The decisions laid out in the agreement can help or hurt you as you determine how much home you can afford. It’s crucial to figure your income and ongoing costs, as they can impact whether you can make a down payment and pay a new mortgage. Depending on the situation, you may need to pay attorney fees, child support, alimony or other costs.
If you’re responsible for the payments on any existing property you might have owned before the divorce, that’s included in your DTI. Conversely, if your spouse was awarded the property, your lender can exclude that payment from your qualifying ratios.
3. Divide Your Finances
When a married couple divorces, the court issues a divorce decree (also known as a judgment or order) that divides their money, debts and other marital assets by determining what each person owns and is responsible for paying. It’s best to separate your money and finances, because your credit score should accurately show your financial situation.
Not doing this could impact your score if your ex-spouse makes poor financial decisions, thus making it harder for you to get a home loan.
4. Remove Yourself From The Mortgage Of The Marital Home
If the property is legally awarded to your ex, you should make sure you get removed from the deed to end your legal responsibility for the property. You may be able to use a quitclaim deed to accomplish this.
5. Show Your Payment History
The contents of any child support or alimony agreements are also important. If you make payments to your ex, it’s included in your monthly debt. On the other hand, if you can show you receive monthly payments that will continue for some time, this can help your qualifying income.
If you’re already divorced, your lender will look for the same information, but it will be from your divorce decree instead of a separation agreement.
6. Get Preapproved
Once you’ve finalized your divorce, preapproval is the next step if you’re seriously shopping for a home. It’s important to get preapproved by your lender before putting an offer on a house or property, because you may not meet the necessary qualifications for a home loan.
With preapproval, your lender verifies your finances and credit score, and lets you know how much you can afford to pay for a house.
What Should You Consider When Buying A House During Or After The Divorce Process
There are a few special considerations you might want to take into account if you live in a community property state or will be re-establishing credit after your divorce.
One thing to note if you’re considering buying a house while separated is whether you live in a community property state. If you do, your spouse may have rights to any property you buy while you’re still married unless they explicitly sign away those rights.
Also important in community property situations is DTI. If you’re getting a government-backed loan (FHA, USDA, VA), your spouse’s debts are included in your DTI. However, their credit score isn’t counted against you for qualification purposes. This also doesn’t apply to conventional loans.
Depending on the situation, it could be much easier to wait until after the divorce if it makes sense and you have concerns about the other person’s credit.
Another consideration needs to be your credit. If you’ve always had joint credit card accounts with your spouse, those go away when you finalize your divorce. Your credit score can take a huge hit, and it’s a bit like starting over from square one.
Therefore, whether you’ve finalized your divorce or you’re going through one, you can work to re-establish your own credit by getting a credit card or two and doing things like taking out small loans in your name only.
During the divorce process and as you re-establish credit on your own, it’s important to make sure you’re monitoring your situation and doing the right things. Our friends at Rocket HQ℠ offer a free service where you can get your VantageScore® 3.0 credit score and report every 2 weeks. You’ll also receive guidance based on your personal report outlining what you can do to improve your score.
If you’re looking for a place to start on your new solo credit journey, here’s something on rebuilding your credit. It won’t happen overnight, but it can be done.
Another thing to keep in mind if you’re in the process of getting a divorce: they’re expensive. It can be easy to get behind on all those bills, which can also impact your credit. It’s essential to keep your financial future in mind. With divorces, we recommend investing in a cash reserve because of all the costs involved, which is why it’s important to rebuild your bank accounts before buying a new house.
Search For A New Location
Depending on your financial circumstances, you may have to look for a new neighborhood after your divorce because your earnings are different. Instead of your household including money from two people, it now only has one. Identifying your ideal living situation is key in finding the right neighborhood. Factors that could convince you to live in one area over another may include:
- Location of school districts
- Proximity to work
- Access to amenities
The Bottom Line
Buying a home can be a stressful process and doing so while going through a divorce or legal separation can make it even more hectic. Keeping the above information in mind can help make your process go as smoothly as possible.
If you think you’re ready to get started with your mortgage process, check out Rocket Mortgage®. Also, one of our Home Loan Experts would be happy to help if you give us a call at (800) 785-4788.