Applying for a home loan and filing for divorce -- both are complicated enough as it. Put the two situations together, however, and things can get sticky.
Divorce can take a toll on credit and finances and, for military borrowers and others, there are considerations if you own a home with a spouse and there's a mortgage attached to it.
For example, how might you refinance your home to remove your spouse from title? And, what happens to your credit if your ex-spouse is left the house and is unable to make payments?
Or,maybe you've just completed your divorce and you want to buy a new home -- maybe with "nothing down". Can you still use the 100% VA home loan via your VA entitlements and the G.I. Bill?
If you used your VA loan entitlement to purchase a home, and your spouse is awarded the home in a divorce, your portion of the entitlement remains inaccessible until the loan is either repaid in full via a home loan refinance; or, satisfied via a sale or some other means.
Buying a home after a divorce can be more challenging, but it's certainly not impossible.Click to see today's rates (Aug 27th, 2016)
Completing a divorce will nearly always alter your financial situation.
Sometimes the changes are drastic and other times they are subtle, but anytime you change your financial situation, you change your ability to get VA mortgage-approved.
If, prior to your divorce, you lived in a two-income household, your now have less spending power and a reduced monthly income for purposes of your VA home loan application.
With less income, it can be harder to meet the VA Home Loan Guaranty's debt-to-income (DTI) guidelines; and, the VA residual income requirement for your area.
Receiving alimony or child support can counter-act a loss of income.
Mortgage lenders will not require you to provide information about your divorce agreement's alimony or child support terms, but if you're willing to disclose, it can count toward qualifying for a home loan.
Different approved-VA lenders will treat alimony and child support income differently.
Typically, you will be asked to provide a copy of your divorce settlement or other court paperwork to support the alimony and child support payments.
Lenders will then want to see that the payments are stable, reliable, and likely to continue for another 36 months, at least.
You may also be asked to show proof that alimony and child support payments have been made in the past reliably, so that the lender may use the income as part of your VA loan application.Click to see today's rates (Aug 27th, 2016)
Being the payee of alimony and child support payments can help boost your monthly household income, which can lower your debt-to-income ratio, making it easier to qualify for a new VA home loan.
However, if you are the payor of alimony and child support payments, your debt-to-income ratio cane harmed. Not only might you be losing the second income of your dual-income households, but you're making additional payments which count against your outflows.
VA mortgage lenders make careful calculations with respect to such payments.
The VA Home Loan Guaranty program requires that all VA borrowers maintain a reasonable debt-to-income ratio, with leeway given to borrowers with otherwise strong credit profiles.
However, the VA does not make exception on its residual income guidelines.
Residual income standards are unique to VA loans.
Going beyond just debt-to-income figures, residual income is the minimum number of "leftover dollars" a mortgage borrower has each month after paying all of its bills.
The residual income guidelines vary by geography and family size, and making court-ordered payments for alimony and child support can harm your ability to meet VA minimums.
You can still get approved for a VA loan while making such payments -- it's just more difficult to show sufficient monthly income.
The circumstances surrounding divorce are different for everyone -- and this include military borrowers just as everyone else. It's best to talk to a lender regarding your specific financial situation and your eligibility.
Get today's live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.Click to see today's rates (Aug 27th, 2016)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
The Mortgage Reports has provided me with helpful advice. I enjoy all the various types of mortgage information. Thank you!
Michael J. Network Engineer
The Mortgage Reports is one of the most accurate, detailed, and informative sources of mortgage-related information on the internet.
Judy T. Business Owner
I read The Mortgage Reports every day.
2016 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)