Can you afford it?
The first thing you need to consider is your liabilities. Keep in mind if you’re in the process of getting a divorce, it can be easy to get behind on any or all bills, which can impact your credit as well. So, it’s essential to keep your financial future in mind throughout the process. The question most lenders will ask is: do you have enough income to handle going through a divorce, in addition to coming up with the cash necessary to close on a home? If you can answer yes to that question, then keep reading.
Can you get the proper documentation?
Purchasing a house while legally married but separated from your former spouse is certainly possible, but there are some things to be aware of extra documentation required. A key item your lender is going to require is your legal separation agreement. If you have a property settlement agreement, they’ll need a copy of that as well. This order, finalized and signed by a judge, describes to your lender who’s responsible for what in the divorce.
This is also important because it can have a significant impact on your qualifying DTI. If you don’t have this broken down, then you may be responsible for debt that is not yours once the divorce is final. On the other hand, unfortunately, if you do not have a legal separation agreement, your spouse may have rights to any property you buy while you’re technically still married unless they sign those rights away to you.
Is one type of mortgage better than another?
Another major factor for home qualification during a divorce is the type of mortgage you can obtain. If you qualify for a conventional mortgage, you will not be affected by this; however, if you’re getting a government-backed loan like a VA, FHA, or USDA, your spouse’s debts may be included in your DTI. The good news is that their credit score isn’t counted against you for qualification purposes.
Many divorcees end up obtaining an FHA, simply because when a person goes through the process of divorce, their credit score falls. FHA will loan you up to 96.5% towards buying a house with credit scores in the 500s, and this tends to help most. So, if your cash flow is low and your credit score is low, these two factors make an FHA loan more appealing than a conventional loan.
How can I re-establish credit after my divorce?
Typically, most divorcees must reestablish credit once their divorce is final. Here are a few things that you can do:
Open an individual credit account: Reestablishing your individual credit now could help you in the long run. Typical ways to build credit include opening an individual account such as a credit card, an auto loan, or an installment loan.
Close old joint credit accounts: Contact lenders and ask to have your joint accounts closed or transferred into individual accounts. This reduces the risk of acquiring new charges that both parties are responsible for. Remember to also remove your name from any accounts that list you as an authorized user. You can usually do this by contacting the creditor.
Pay your bills on time: When dealing with both the emotional and financial repercussions of a divorce, it’s easy to forget who is responsible for paying the bills. While this may seem like a no-brainer, make sure bills are being paid on time throughout the process.
Legacy Credits has been helping divorcees for years and experience has taught us that patience and persistence are the keys to positioning yourself for homeownership. Divorce and your credit may seem difficult to tackle, but it’s important to remember that you’re not in this alone. Legacy Credits is here to help guide you through this process, and by taking the right steps, we can rebuild your credit score and prepare you for the future.