Finding a mortgage for borrowers who are separated can sometimes be a challenging task.
Even if it seems like the perfect deal, when there’s no separation agreement in place, things can be tough. Even if the borrower has stellar credit, long-term solid employment, a desirable house that they wish to purchase, and a significant down payment. Basically, in every other respect, it should be a slam dunk.
But unfortunately, there’s the one big elephant in the room. Being recently separated and not yet having a formalized separation agreement in place means a lender won’t want to touch the deal.
But why is this such a big deal for lenders?
The problem is that part of the money for the down-payment may legally belong to the spouse. And ownership of anything purchased with that money could be challenged. Also, the income stated may not take into account the liability for support payments. And they could potentially be substantial.
What’s the solution? There’s no easy answer but here are 2 things to consider:
- The borrower may need to work with an alternative lender even if their credit and income are both excellent. This is because alternative lenders have the flexibility to underwrite each application on its own merits. Rather than imposing a one-size-fits-all answer. Yes, the borrower will be paying higher rates and a fee at closing, but it may be the only way to get the deal closed.
- The borrower should talk to their divorce lawyer. It may be possible to come to an agreement before a full settlement of all the support issues are settled. This way it could free up some of the cash or assets that the spouses have accumulated so that they can move on. Alternatively, the lawyers may be able to agree on a priority agreement that the other spouse signs which would effectively give the lender a priority over any interest they may have in the new home. While this is not a guaranteed solution, it would be worth a try given that there is no formal separation agreement in place.
Do you have borrowers who are separated and looking for a mortgage? Or any other challenging file? Call the experienced underwriters at Kokanee Mortgage to see if a custom solution can be crafted for your client.