By Geoff Williams
In a divorce, it's bad enough that you're losing someone you once loved or may still love. It's even worse when you find out you may lose your house, too. And finding a replacement, much like starting a love life all over, won't be easy. After all, lenders tend to give mortgage loans to people with good credit and a solid stream of income. If you were previously a two-income household, you aren't now, and if you're paying alimony, you have less money than you did.
Whether you're in the midst of a divorce or its aftermath, here are some things you can do to land a mortgage and what you can reasonably expect.
You may want to get your name or your ex's name off the mortgage. But perhaps not; it depends. If you are planning to buy a house, and your ex is living in the home you co-own, then ideally, your ex%VIRTUAL-pullquote-It can be difficult for a person paying alimony to buy a house because of the way lenders look at that alimony.% needs to refinance in his or her name. That will decrease your debt and increase your odds of being able to get a new mortgage.
What if your ex can't refinance on her or his own? If you'd like to see your ex and the kids remain in the house, you may want to leave your name on the mortgage and co-own the house for a while with your ex.
"People do that all the time," says Katie Connell, a family law attorney with Boyd Collar Nolen & Tuggle in Atlanta and a governor-appointed member of the Georgia Commission on Child Support. "I'm stereotyping, but often a woman who didn't work full time and doesn't have the income stream or the credit to buy her own house, she and her ex-husband have agreed, with their family transitioning and changing, that it's in their better interest to keep mom and the kids in the house for, say, four or five years or when the kids go into their college freshman year," she says. "The husband is often willing to essentially extend his credit to his ex-wife by letting his name stay on the mortgage."
If you're going that route, Connell says you'll want to work out details about how profits will be split once the house is sold down the road. It may not be an equal split since one ex-spouse will be likely making the mortgage payments and possibly spending money to maintain the home for those extra years.
Connell says that arrangement tends to work better if the ex without the house still has enough income and good credit to buy a new home of his or her own.
Don't buy a home during the divorce proceedings. Even if you're rich beyond belief, and your credit and income stream are solid, it's still a risky move. Connell says one of her clients lost $10,000 in earnest money when he tried to buy a house during his divorce proceedings.
"He had great credit, a very good income, but when the lender found out he was going through a divorce, they said, 'Your alimony and child support payments are question marks,'" Connell says. "By the%VIRTUAL-pullquote-Some lenders won't even consider letting a divorced person who receives alimony use that alimony as evidence of income....% way, this client had a different lawyer back then. If I had been representing him, I would have said, 'Don't do it!'"
Connell adds that when the client's ex learned he lost $10,000 in earnest money, the ex's lawyer naturally felt that the ex was entitled to at least half of that money – it was, after all, money that otherwise would have been in the pot of assets to split.
It can be difficult for a person paying alimony to buy a house because of the way lenders look at that alimony. "Alimony is considered a debt," says Susan Pryor, branch manager of Silverton Mortgage Specialists, a direct lender in Atlanta. "If you make $10,000 a month and give $3,000 to your ex-spouse, the lender doesn't look at it like you're making $7,000 a month. They look at it like you have a $3,000 car payment every month."
Where should you live during the divorce proceedings? Assuming you aren't selling the house immediately and you're both looking for a place to rent, there are two common approaches couples take, according to Connell.
Stay in your house with your soon-to-be ex. "We definitely see more people grinning and bearing it and living together longer," Connell says. "We saw a lot of that in this last recession." It's an idea that makes some sense. Living together awhile longer will save you both money. And especially if you have children, maintaining a civil relationship under the same roof may help with your post-divorce relationship.
You could nest. You hear "nesting" used a lot in pregnancy, but Connell says that in the divorce industry, the term refers to renting an apartment near the house and living there while a divorce is worked out. "We see a lot of couples who take turns living there, and the kids stay in the house," Connell says.
Connell adds the latter arrangement may not work for couples who still harbor a lot of anger or suspicion. She recalls an instance where a wife was convinced the husband was unplugging lamps and cable cords throughout the house before he would leave for the week.
"No damage or harm was done, but [the wife felt] it was just to be a pest," Connell says. Meanwhile, the husband said the cords came unplugged from his vacuuming, and that the wife was leaving dirty dishes in the sink.
Whatever you do, Pryor urges divorcing homeowners to not rush their decision of where to live next. "You may be under tremendous stress, and it's an emotional situation. Divorce can shake your planning, and you may not be able to make the right decisions," she says.
Besides, you may not be able to rush, even if you want to. Some lenders won't even consider letting a divorced person who receives alimony use that alimony as evidence of income until there's a six-month history of alimony payments being paid on time, Connell says.
You may be better off without a mortgage. This may be the last thing you want to hear if you want to hang onto your house or buy a new home. But the money math may not add up.
It's a common mistake with divorced homeowners, says Jean Ann Dorrell, a certified estate planner in Sumter County, Florida. Many people, she says, are "trying to hold onto a house because it's where the kids grew up or because you don't want the kids to have to change schools, you don't want to lose friends and you stay too long trying to afford something you never could have or should have."
Pryor agrees. "We see it a lot," she says. "It's especially emotional when children are involved." She adds that spouses who didn't know a divorce was coming tend to be the ones who can't face their new budget.
Pryor recommends professional help for anyone divorced and struggling to keep their home or figure out where to live next.
"I think it's important to do some financial planning, and there are planners who focus on divorce, so you can see what money is coming in and what's going out," Pryor says. "Just because you can barely make that mortgage payment every month doesn't mean you should stay in the house."