Why Do Mortgage Lenders Need To See Separation Agreements?
November 19, 2019 | Posted by: Sherry Corbitt
Divorce can take years. It isn’t something that can be done overnight, and it shouldn’t be either. So many things need to be considered when separating, things you might not even know to think about right now because it’s such an emotionally charged time for everyone involved.
It is natural to want to buy a new home to start over and rebuild your life after you have gone through so much. But, if you are paying support payments, you may not qualify for as much of a mortgage as you may have thought.
When couples separate, typically, the marital home is sold—either to you or your spouse in a buyout or to a third-party buyer. A Separation Agreement is required to instruct the real estate lawyer on how to disperse assets upon selling the home. In addition, if you plan to buy a new home, mortgage lenders require a Separation Agreement where it will outline everything from the division of the marital home to child support payments (if applicable) and alimony.
If the money for the new home’s down payment comes from a spousal buyout, the Separation Agreement and Statement of Adjustment may be needed to prove where the money came from. In addition, 90-day bank statements will also be required to show that the money is still in your bank account.
A mortgage is a financial obligation. From a lender’s point of view, they want to make sure that everything is settled and dealt with. If it’s the marital home that is being sold or is a spousal buyout, they want to see the division of the funds. If you pay alimony or child support, those obligations need to be disclosed.
Why?
Because any payment obligation is a monthly liability and will affect how much of a mortgage you can get. For more information on what affects affordability, read all about it here.
This isn’t to say that lenders won’t give you a mortgage contract because of these obligations. However, we work with lenders who not only will use child or alimony support as a source of income but, if you pay it, will allow us to deduct these payments from your gross income rather than add it to your monthly liabilities. This can be a massive benefit to your Total Debt Service Ratio.
Ending a marriage can be messy, but having a Separation Agreement will help mitigate some challenges. In addition, a Separation Agreement gives lenders an idea of your financial situation regarding child/alimony obligations, the assessment of the property, and any debts you may be taking on.
If you have any questions about a separation agreement, please contact me!
Sherry Corbitt, Mortgage Broker
