Get some great information on the answer to the question “How can I afford a house after divorce”?
One major concern we hear all the time is “How can I afford a house after divorce”. We get it. It can be a lot to figure out.
Understanding what you can afford after divorce will determine where you should live. You may end up receiving Spousal Support/Alimony/Maintenance. These terms all represent similar things – payments from one divorcing spouse to the other. The purpose is to help the lower-earning spouse cover expenses and maintain the same standard of living after the divorce.
But each term has a different meaning when it comes to mortgage lending. We haven’t really “caught up with the times” yet…..
When your final divorce agreement is written up – it could make the difference between what you might qualify for, for a new mortgage. If you are the receiving spouse, there isn’t much difference in how we could use the income to help you qualify for a mortgage.
However, if you are the paying spouse…..yikes! It could make a huge difference. When you are the paying spouse, the lender must include your support/alimony/maintenance payments as part of your monthly debts….But HOW they count it will matter.
There are 2 ways a lender can look at this debt.
· As Debt
· As a reduction in income
Now, for the regular person, seems like these are the same thing, no?
Not so in the mortgage world.
DTI (Debt-to-Income) is one of the largest factors a lender will use to qualify you for a mortgage. Simply put, this is your monthly debts divided by your monthly income. For most loan programs, you need to be below a 45 DTI.
Here is some math…but don’t be afraid… it’s super simple! Here is our example:
The paying spouse has the following monthly debts/income:
· $8,000/month income
· $400 car payment, $100 student loan, $100 credit card, $2,000 support payment
Here is what DTI looks like if we count the debt as:
· A liability- $2600 in monthly debt, divided by $8,000 monthly income=32 DTI (yikes! This is before we add a new mortgage payment to the mix!
· A reduction in income – Income of $8,000-$2,000 support=$6,000/month income divided by $600 debts=10 DTI- Holy Cow! What a difference!
The option to reduce income by the debt is FAR better for the borrower!
So in the end, in order to reduce the income by the liability, in most cases, the support must be labeled as Alimony in the divorce agreement. NOT support or maintenance.
Working with a CDLP (Certified Divorce Lending Professional) BEFORE you finalize your divorce agreement could make a HUGE difference in your post-divorce finances. To learn more about the special issues of having a mortgage after divorce, our expert Renee Guidaboni Coleman is ready to help!
Don’t stay up all night going over how can I afford a house after divorce. Get the facts from our experts and you will be able to know exactly how you can move forward!