The most common question we get from homeowners who are thinking about divorce is, “What happens to our home?” “Does one spouse get to keep it and the other has to move out?” “Does it have to be sold right away?” Not surprisingly, uncertainty about what happens to your home can cause a good deal of anxiety.
Even when the question of “who gets the home?” is resolved, if the parent staying in the home has never refinanced or applied for a mortgage, the process of refinancing can cause a bit of stress too. Especially if the person who will continue living in the home has been out of the workforce while caring for their children. Refinancing your home during divorce may still be an available option, and can help them “buy out” their spouse’s share of the home.
Is Refinancing an option?
Many parents contemplating divorce are unaware that they are eligible for refinancing opportunities. Here at Bedford Family Lawyer, we talk to a lot of stay-at-home mothers (SAHM’s) who are worried they can’t refinance their home because they have been out of the work force for an extended period of time. This is not necessarily the case. Although banks will want to verify a “sustainable” income source, this isn’t limited to just a job. A “sustainable” income source also includes:
- child support,
- separation maintenance,
- retirement income,
- trust income, and more.
Combined, these are all considered part of your total income. For many SAHM’s going through a divorce, staying at home to care for your children and/or time in school can be counted as part of the required two year employment history.
Where do you start?
It is best to get a pre-approval letter and understand how much money you can afford to spend on your home at the beginning of the separation process.
“Ideally you know your numbers before you even engage in the [divorce] conversation or mediation,” advises Jason Factor, Loan Officer (NMLS #1401985) with Mortgage Network, Inc. (NMLS #2668). “I usually like to sit down with one or both parties involved and figure out: Is someone keeping the home? Do you qualify for to carry the mortgage on one income? If not, what would we need to do to get to qualified? These are all important things to know as part of the early conversations. The last thing you want is to assume ownership of a home you cannot afford to maintain.”
How Do I Determine If I Should Refinance?
The first thing to consider is how long you intend to stay in your home. If you plan to move in the near future, refinancing may not make sense, as you may not recoup closing costs. Conversely, if you plan to stay in your home indefinitely, then refinancing may be a good option.
We recommend working with a mortgage broker, because they will have access to several different types of loans, with varying application requirements. They will also review your home’s value, existing mortgage and income. A mortgage broker or lender will determine your eligibility for a loan and can help you determine whether it makes sense to refinance.
You will need to provide documentation of your income in order to qualify. This includes two years of W-2’s and tax returns, and/or a judgment or court order of child support or alimony. The court order does not have to be two years old, but it helps to show that your spouse has already started making payments.
“The key is to know your goals so that you can select the right loan product. Once you know your goals you can work with your lender to back into the loan that best fits your needs—cash out, lower payments, aligning terms with retirement planning, etc.,” says Jason Factor, Loan Officer (NMLS #1401985) with Mortgage Network, Inc. (NMLS #2668).
How Can I Estimate My Monthly Payment?
To figure out your monthly payment on a refinanced mortgage, you will need to estimate your monthly mortgage payment (principal and interest), property tax and insurance payments. This is commonly referred to as “PITI”: Principal, Interest, Taxes, and Insurance.
Property tax rates are set by cities and towns, so you need to look at your town assessor’s website to determine your property tax rate. The other component of your monthly payment is your home insurance. The monthly home insurance payment shouldn’t change when refinancing.
When trying to figure out your monthly payment, be sure to use a calculator that includes PITI. We like the one at Nerd Wallet, which allows you to type in your own values for taxes and insurance: Mortgage Calculator with PITI.
Where Can you Get More Information?
Hopefully, this information can put your mind at ease when it comes to one of the big financial uncertainties of divorce. If you would like legal advice tailored to your specific situation, please feel free to reach out and schedule a consultation.