January 10, 2014: The Day Divorce Gets Even Harder

By Attorney-Mediator Stacey H. Langenbahn, J.D.

There is never a good time to divorce.  But some times are better than others - like between now and January 10, 2014 when it gets harder to buy a house.  On that date new mortgage protection rules issued by the Consumer Finance Protection Bureau (“CFPB”) go into effect that will make it tougher for everyone to qualify to refinance their current home or to buy a new one.

Divorcing spouses are likely to be hit particularly hard, especially stay at home parents who do not have a history of steady employment or income. 

Among the new mortgage rules is the Ability-to-Repay rule which requires lenders to verify a potential borrower’s financial records and consider a minimum of eight underwriting standards:

  • Current income or assets;
  • Current employment status;
  • Credit history;
  • The monthly payment for the mortgage;
  • The monthly payments on any other loans associated with the property;
  • The monthly payment for other mortgage related obligations (such as property taxes);
  • Other debt obligations; and
  • The monthly debt-to-income ratio or residual income the borrower would be taking on with the mortgage.  It cannot be more than 43%. (Debt-to-income ratio is a consumer’s total monthly debt divided by their total monthly gross income).

Under these new rules, a loan cannot be made unless the borrower has sufficient assets or income to pay back the mortgage.

Even if you qualify for a loan, before you commit to house ownership seriously ask yourself:

  • Can I afford it alone (mortgage, taxes, insurance, upkeep, furniture, utilities)?
  • Will I have to sacrifice things like travel with kids or friends, movies, eating out, or hobbies just to have enough money for the house?
  • Do I have time, energy, and skill to maintain it myself without a spouse to help?
  • Do I really want a house?

If you are thinking about divorce and part of your divorce plan is to buy or refinance a house, you would be wise to start the divorce process immediately.  Talk with your mortgage broker about getting your house purchase completed before January 10, 2014 or potentially risk being unable to qualify for a loan.

Your mortgage broker can tell you how much money you need monthly from your divorce settlement to qualify.  Knowing that, you can structure child support, alimony, and property settlement payments to create a stream of “qualifying income” to get that loan.  This can be a daunting process and one that must be done right if you are to meet your goal of home ownership after divorce.  An experienced divorce mediator can help explain the steps, develop options for a creative settlement plan, and assist with negotiations with the other spouse.  Do not wait.