What you need to know about divorce equity buy-outs: Qualifying to keep the house (Part 3 of 4)
Divorce and mortgage financing issues are commonly controversial in divorce cases, especially when one spouse is reliant on divorce income for mortgage qualification purposes. It is critical to determine whether the spouse wanting to buy out the other qualifies.
Qualifying for a mortgage is not easy anymore. Presuming one party needs to refinance in order to buy out the other party and keep the house, they need to be aware that the double whammy of rising interest rates and elevated home prices may make the decision not as straightforward as hoped for.
Let us consider “Qualifying Income” for mortgage qualification. Let’s take a look into what income matters to mortgage underwriters:
Alimony/Maintenance: Along with child support, Alimony must meet specific requirements to be considered as “Qualifying Income” for mortgage financing purposes by meeting both continuance and stability tests.
Continuance: A key driver of successful homeownership is confidence that all income used in qualifying the borrower will continue to be received by the borrower for the foreseeable future and will continue to be paid for at least three years AFTER the date of the mortgage application. Check for limitations on the continuance of the payments, such as the age of the children for whom the support is being paid or the duration over which alimony is required to be paid.
Stability: A review of the payment history is required to determine its suitability as a stable qualifying income. To be considered stable income, full, regular, and timely payments must have been received for six months or longer, provided the income does not represent more than 30% of the total gross income used to qualify for mortgage financing. If full or partial payments are made on an inconsistent or sporadic basis, the income is not acceptable for the purpose of qualifying the borrower.
Other factors that matter when qualifying for a mortgage
Beyond your qualifying income, these factors will be considered when evaluating your application for a mortgage: Credit score, Down payment , Assets and cash reserves.
If you want the best possible outcome from your current situation, it’s worth considering hiring a Certified Divorce Real Estate Expert (CDRE) to guide you through the process step-by-step while ensuring that everything is handled professionally and efficiently.
© The Ilumni Institute
Katina Farrell, CDRE is an experienced Realtor & Managing Broker who specializes in real estate transactions, with expertise as a trained Certified Divorce Real Estate Expert and a Certified Negotiation Expert. To schedule a complimentary chat and discover more ways Katina can help you resolve the real estate challenges plaguing your divorce cases, call: 720-295-8848 or email: [email protected].