Mortgage Tips for couples dealing with divorce – PART 1
The purpose of this article is to provide existing, and even potential homeowners who are, or soon will be dealing with divorce with some mortgage tips to help simplify the process of moving forward financially. Before going forward, I have to acknowledge that I am not a divorce lawyer, and therefore, the information provided in this article simply relates to qualifying for a mortgage post-divorce; whether for buying out a spouse to take ownership of the matrimonial home, or to facilitate purchasing a home on your own after the divorce. The mortgage tips contained in this article solely relate to mortgage qualification.
As we have discussed before, mortgage qualification is based on 3 primary factors:
Down Payment/ Equity
These three factors remain paramount when it comes to applying for a mortgage during/after a divorce, and therefore, proper attention must be paid to all three. In this Part, we will provide you with mortgage tips related to credit management during a divorce/separation.
Mortgage tip number 1: during a divorce/separation, keep making your mortgage payments.
Regardless of your income situation, or the amount of equity in your marital home, if you stop making your debt obligations during the course of a divorce, obtaining a mortgage may become costly, or in some cases, even impossible. Poor mortgage repayment history for any reason (illness, loss of job, divorce, family death, forget-fullness, etc) is reported on your credit report in the same way: LATE. The credit report does not indicate a reason for the delinquency, and therefore, any mortgage lender looking at your report in the future would only see that you were delinquent with a mortgage payment. Once you have already been flagged as having poor mortgage repayment history, trying to rebuild your image with a mortgage lender become nearly impossible. Missing mortgage payments is not highly regarded by mortgage lenders or insurers in Canada, and if during the course of a divorce/separation you choose to stop making your mortgage payments, you will be adversely impacting your ability to obtain a mortgage for decades.
Mortgage tip number 2: Make all of your credit payments during a divorce/separation
During the course of a divorce, emotions can run high, and ownership of debts can become contentious. Often times, spouses will choose to stop making credit card and/or auto loan payments to show that they do not have ownership of that debt/vehicle, however, just like a mortgage, failing to make minimum credit card, line of credit, and auto loan payments (even during the course of a divorce) will negatively affect your credit rating, score, and even your relationship with credit lenders. As we’ve talked about before, an applicant’s credit score is one of the baseline items reviewed by mortgage lenders in the process of applying for a mortgage. Once damaged, a credit score can take years to recover, pushing back your ability to purchase a home, buyout your ex-spouse, or even apply for credit in general.
Mortgage tip number 3: Get a copy of your credit report right away
In order to ensure that you follow through on mortgage tip #2, you need to know what credit you are responsible for. In many relationships, spouses have guaranteed loans, signed on credit cards, or taken cell phone plans for their significant other. Many times, the two parties aren’t even aware of all the loans they have co-signed on. Therefore, in order to ensure that you are protecting your credit rating, and score, it is incredibly important to get a copy of your credit report as early in a divorce/separation as possible. Credit reports can be obtained by visiting Equifax.ca, and Transunion.ca.
You can worry about who owns what debt afterwards, however, if you choose to stop making your mortgage, credit card, LOC, auto loan, student loan, cell phone bills, or any other debt payments during the course of a divorce/separation, you’ll be doing yourself a tremendous disservice in the context of qualifying for credit/mortgages in the future. Your credit report is the single most important financial report you have, and therefore, it is in your best interest to do everything possible to ensure that it remains strong, and unaffected by a divorce/separation.
Failing to do so could end up costing you tens of thousands of dollars in higher interest rates based on poor credit score(s), rent payments(if you now can’t qualify to purchase a home and have to end up renting) and even fees(for arranging high interest mortgages) going forward.
Pay all of your bills during a divorce or separation (even if you don’t want to), in order to protect your credit, and provide yourself with the ability to obtain credit in the future.
In the coming weeks, we will provide more information regarding the income, and equity implications of divorce, followed by a thorough article, outlining how to qualify for a mortgage after divorce(to payout a spouse, purchase a home, etc).