Why Do Mortgage Lenders Need To See Separation Agreements?
June 3, 2019 | Posted by: Sherry Corbitt
Divorce can take years. It isn’t something that can be done overnight, and it shouldn’t be either. There are a lot of things that need to be taken into consideration 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 matrimonial 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 how to disperse assets upon the sale of the home. If you are planning to buy a new home, mortgage lenders require a Separation Agreement where it will outline everything from the division of the matrimonial 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 show proof of where the money came from. 90-day bank statements will also be needed to show that the money 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 matrimonial 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.
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. 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 huge benefit to your Total Debt Service Ratio.
Ending a marriage can be messy, but having a Separation Agreement will help mitigate some of the challenges. A Separation Agreement gives lenders an idea of your financial situation with regards to child/alimony obligations, the assessment of the property, and any debts you may be taking on.