By Tammy Engel
Mortgage Advisor
Before you say, 'I Do'
Mortgage Matters
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Congratulations on your engagement! You probably want to begin your wedded life of bliss by buying your new home together. Or are you desperate to finish your divorce? Here is what you’ll want to consider about the timing of a home loan transaction when your marital status is about to change.
When you’re single you can buy a home by qualifying on your own, or by qualifying with the other person (or people) who will live in that house with you. Credit-wise, you’ll qualify based on the worst credit profile of the bunch. If you want to use the USDA no-down program, we’ll be considering the income of the entire household, regardless of who is on the actual loan, to be sure you don’t exceed that program’s income caps.
Once you marry, because California is a community property state, we get to consider your spouse. At the very least, if you buy a home and want to exclude your spouse due to their bad credit, you could do a conventional loan with the appropriate down payment – but your spouse still needs to sign off ownership. An inter-spousal quit claim will be required, whether you are married, are in the midst of a divorce that is not final, or if you are legally separated.
It gets more complicated if you want to do a government loan (FHA/VA/USDA). For these loan types, even if we exclude your spouse for credit problems, and they are willing to sign off on ownership, we still have to count their monthly debts against you. Easy if you make enough money to cover it, but oftentimes this provision ruins a qualifying debt ratio.
We’ve written joint loans where one person was single but the other was not completely divorced yet. In that case, the married person’s still-legal spouse had to participate by submitting their credit report and signing an inter-spousal quit claim. Good thing everybody was still on speaking terms.
What about when the marriage is over? After a formal divorce, even if the court has awarded the house and the liability to your former spouse, you may be required to show they have made the past twelve house payments from their sole checking account. Otherwise, this debt could still be held against you in qualifying.
As to child support and alimony: Your lender is counting that monthly debt against you, and your escrow officer is verifying that your payments are current when you sell your home or refinance. If you receive either, we want to see that you’ve consistently received payments for at least a year, and that at least three years remain.
Since there are so many fine details about qualifying for a home loan and your marital status, it’s always best to talk to your local mortgage advisor to make a plan. Better to know what’s real up front, than to make assumptions and have a terrible mortgage experience.
