Divorced and Looking (For a House)

If you’re newly separated or divorced, you could be shopping for a home.

Letting go of the home you shared with your former partner leads to a series of steps: from the deed you shared, to a new deed. A deed to a home of your own.

Here, we spot the issues for the newly single…and looking. 

Prepare for the effects of divorce on your ability to borrow.

This happens no matter how well the divorce court tries to ensure you live “in the manner to which you’re accustomed.” After your split, your eligibility to borrow will be calculated based on your income alone.

Getting a stream of support money from your ex? The lender will understand those funds as income, which boosts your loan eligibility. Of course, it’s the reverse if you’re the one making support payments.

When home prices (plus mortgage interest rates) are elevated, mortgage sticker shock is real. But you’re not alone. Divorces regularly send solo home shoppers into this competitive housing market.

Consider a government-backed mortgage.

As a new divorcee, you might find the down payment too much of a hurdle. You might wonder if you’ll need to rent instead, or even continue living with your ex.

But don’t despair. Look at the option of a government-backed loan. A popular loan among single people and people buying modest homes is the FHA mortgage, backed by the Federal Housing Administration. These loans have inclusive eligibility rules. And FHA applicants with healthy credit histories can put down just 3.5% on the price tag for a new home.

If you’re self-employed, can you qualify for an FHA mortgage? Take a look.

Take yourself off the prior mortgage loan.

If your ex keeps your former home, you can get off of the former mortgage by being released by the mortgage company, or—more likely — refinance that shared mortgage so that it’s now in your ex’s name only.

What happens here should be stated in the divorce decree. Is the court directing your ex to make payments, going forward, for a home loan you once shared? That does not automatically take your name off that mortgage. The lender needs to agree to take you off.

If your name stays on your prior mortgage, and your ex doesn’t make the payments, you’ll be on the hook — although the divorce court can order your ex to repay you. But that’s an incomplete solution. It’ll be hard to get a new mortgage while you’re still on the old one.

Take your name off your former home’s deed.

Ask your divorce lawyer if signing the home over to your ex, and the method to do this, will appear in your divorce decree.  If your ex is keeping the home, a quitclaim deed (see available forms) is the simplest way to transfer the title of the home to your ex.

Depending on your state law and your specific settlement document or divorce decree, a quitclaim deed can be used to change a home’s joint ownership into sole ownership.  

In short, if you’re refinancing your mortgage into the name of your ex only, it’s time to update the home’s title.

Learn more on Deeds.com about divorce and quitclaim deeds.

If you’re selling the former home, know how much home equity you’ll have.

Your divorce decree will lay out how you’ll allocate the value of the home between the joint deed holders if you sell.

Home equity is your portion of the home’s value, once the mortgage debt is resolved.

When a couple sells their home to liquidate its value, then closing costs and fees, including the appraiser’s fee, will also be subtracted from the equity you receive. Other costs of selling your former home include repairs and the cost of the real estate agent’s work.  

When a homeowning couple breaks up, both need to know the options for changing the deed. Learn more with Deeds.com.

Find a real estate agent who will work hard for you.

Finding the right professional to help you buy your next home matters. A good agent can smooth out the rough edges as you deal with the double whammy of divorce and home-seeking. An experienced, local professional can give you pointers so you learn the process of getting a mortgage during a major life transition.

Choose the right location for you (and your kids or anyone else who will be living with you). Ask your divorce lawyer for agent recommendations in the area.

Friends who have successfully navigated the process can tell you about their experiences, and might have agent recommendations.

Request pre-approval from the mortgage company.

Be ready to give your mortgage consultant a copy of your legal separation agreement and/or court-issued divorce decree. A lender will need documentation of the assets, debts, and responsibilities you’ll be bringing out of the divorce. Then the lender will let you know how much borrowing power is pre-approved for you.

A few reminders for the newly single person in the loan application process:

• Be sure your joint accounts are closed.

• Ask the mortgage pro how many and what types of credit cards to seek under your individual name. (A new Amex card has a greater score-building potential than store cards have, for example.)

• Pay credit card debt off fully each month to strengthen your personal credit profile.

To keep your credit profile healthy, the automatic bill pay setting for is your friend.  

Keep some money aside, as a reserve. The lender will insist on it.

Size up your (non-retirement) financial accounts. Determine the total you’ll want to spend on a new home — plus taxes, insurance, furnishings, and any commuting expenses.

Shop carefully. Aim for a home that’s comfortably cheaper than the amount you’re approved for. That way, when your new place needs maintenance, you’ll have the resources.

As a matter of fact, your mortgage underwriter will expect you to have at least a good two months’ worth of funds in savings to cover housing costs, just in case your income takes an unexpected turn. After all, you may be getting the deed — but that new home is the mortgage lender’s collateral!

A lender sizes up the loan applicant’s debt-to-income ratio by determining the share of the borrower’s monthly income to be allocated to the new home loan and other monthly credit accounts.

Getting your bearings? We hope we’ve helped you spot some issues.

This discussion is for general orientation purposes only. Nothing on this site should be taken as financial or legal advice for any specific situation. Deeds.com is not a legal or financial adviser. To understand the legalities of property division and ownership beyond your divorce lawyer’s expertise, consult a real estate attorney licensed in the state where the home is. To anticipate tax impacts of the property division, speak with your tax expert.