Refinancing or purchasing a home after a divorce can be challenging. Knowing some basic requirements will help you know what to expect before applying for a mortgage.

One of the reasons that divorce rates rise as the economy improves is because couples who were previously money strapped and living in homes that had lost value during tough economic times, are now able to financially move forward. People are finding jobs more easily, houses are rebounding in value in many areas, and there are finally resources to move forward.

However, why divorce may now be financially more feasible for many, there are significant financial ramifications to the decision. The challenge that many people face is trying to focus on making discerning financial decisions amidst a highly emotional experience. People often find that they regret having made certain decisions but at the time, they just wanted to get the process over with. This is absolutely understandable and why it can be very helpful to seek the support of appropriate and qualified advisors before making major decisions.

Figuring out where to live post divorce and what you can afford is definitely one of those decisions that it is important to explore before an agreement is finalized. The following is practical advice for anyone considering using support payments to finance a house post divorce.

Guidelines regarding the use of support income to qualify for a mortgage

There are very specific guidelines regarding the use of support income (child support and alimony) as income to qualify for a mortgage.

• The income must be clearly described in the separation agreement.  If there is no documentation regarding support income, then it cannot be used for qualification purposes.
• You must have received the income for a minimum of 12 months with proof of receipt in the way of canceled checks, bank statements or support order payments with the state.
• Child support received for less than 12 months may be considered on a case-by-case basis.  If the income is sporadic, the mortgage company cannot guarantee a steady receipt and will not use it for qualification purposes.
• Any support income in arrears during the previous 12 months, regardless of the amount, will not be allowed.
• The separation agreement must specify receipt of support for a minimum of three years from the date of closing to be used for qualification purposes.
• If using child support, the dependents’ birth dates are needed.  Mortgage companies will only count child support income until the age of 18 so if the child is 15 or over, it will not be considered as qualifying income.
• If an end date is not clearly indicated for support payments, a mortgage company will typically not use the alimony piece of the income.  Child support continuation can be deduced based upon the age of the dependents.

Tips on transitioning from a Jointly Owned Home to separate residences

If you own a residence jointly with your spouse and cannot qualify for a mortgage on a new home while carrying the current mortgage payment, you will need to be removed from the current mortgage before proceeding. Even if your separation documentation clearly states that your spouse is responsible for the payment, you are not off the hook with your current lender.  You are an owner and a borrower and until the debt is refinanced/paid in full and you are properly removed, you are responsible for the payment.  If your spouse doesn’t pay the bill on time, this past due payment will reflect on your credit report regardless of what is indicated in your separation/divorce paperwork.

On the other hand, If you wish to maintain the marital residence as your personal primary residence, but your spouse is looking for equity from your residence, this equity can be added to their new mortgage as part of your refinance.  The mortgage company is required to order an appraisal to determine value.  If you have ordered an appraisal individually as part of your proceedings, this will not be the appraisal used for mortgage purposes.

A final Divorce Decree is not necessary in PA to move forward with a refinance or a new home purchase.  As long as the terms of the written separation agreement addresses the property settlement as well as support being paid or received and is signed by all parties, it may be an option to close on your mortgage before the divorce is finalized.

The best advice is to talk to a Phildadelphia Mortgage Advisors' loan officer before proceeding.