Separation and Divorce and your Mortgage
Life changes like separation and divorce are emotionally difficult - no question. Adding in financial uncertainty makes this situation even more difficult. Finding out what is and is not financially possibly can help provide some peace of mind. It is crucial to do what you can to protect yourself financially and to protect your credit rating during the process. I have assisted many clients through the divorce process and post-divorce mortgage financing. Below are a few common questions, and some brief answers, but every situation is unique. Please feel free to
contact me for a quick chat, even if it is very preliminary.
My partner and I are splitting up. Can I buy my own place right away?
Working out a final agreement with your former partner is a priority, especially if you need a new mortgage. Generally, mortgage lenders need to have a final separation agreement before they will lend to either party. This can feel daunting, but it may help to understand that your lender needs a clear picture of spousal support income or expenses when qualifying you for a mortgage.
My partner and I are separating. Is it possible for me to keep the house?
Maybe. If you have a separation agreement and qualify for the mortgage amount needed to buy out your partner, you may be able to keep the property.
I’m moving out. WhO has to pay the mortgage?
Moving out of the home and being physically away from the property doesn’t change your legal obligations in the mortgage contract. If payments are not made on time, it will affect the credit score of both parties, so it is in everyone’s best interest to come to a practical agreement on how payments will be maintained during separation. The worst case scenario is that payments are not made and the lender is forced to foreclose and sell the property. If that happens, credit scores and borrowing ability of both borrowers will be seriously damaged. It is an important time to get good advice to protect your credit score and your ability to buy a home in the future.
Do we have to sell the property?
Clients are faced with whether the shared home will be sold or if one partner has the ability to buy out the other. From there, one or both parties may buy alternative properties or rent until they can qualify on their own. I can help you determine if you are likely to quality on your own.
My parents want to help me buy a place after my divorce. Can they help if they are retired?
Once you have a separation agreement, there are several ways family members may be able to help you buy on your own if you don't qualify alone.
My credit got really damaged during my divorce. How can I buy a place of my own again?
Repairing your credit can take time, and you will need a plan, and then follow it. Sometimes people will need alternative financing initially and that can be ok as long as there is a plan to improve your credit and borrowing strength so that we can move you to a traditional lender in time.
Will lenders use spousal support as income?
Usually yes, but lenders want to know that this income stream is stable and will continue for at least the term of the mortgage. As always, lenders will require a copy of your separation agreement, and may want to see proof that regular support deposits have been made into your bank account. Generally, major lenders usually want you to have other verifiable income sources as well. Child tax credits are also used by some lenders.
Contact me for more information
Resources:
In BC, Family law is clear. A good place to start is here: https://family.legalaid.bc.ca/finances-support/property-debt/protecting-yourself-financially-after-you-separate