Does this scenario sound familiar? You have what you think to be the perfect deal. The borrower has stellar credit, long-term solid employment, a desirable house that they wish to purchase and a significant down payment. Should be a slam dunk.
But here’s the catch. They’re recently separated and they haven’t yet formalized a separation agreement with their soon-to-be ex-spouse so no lender will touch the deal. 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 so ownership of anything purchased with that money could be challenged by the spouse. Also the income stated may not take into account the liability for support payments which could 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 like Kokanee Mortgage even though their credit and income are both excellent. This is because we have 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 because they may be able to come to an agreement, before a full settlement of all the support issues are settled, to 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 that effectively gives the lender a priority over any interest they may have in the new home being purchased. It’s not guaranteed that this will work or even be an option, but in the absence of a formal separation agreement, it may be the only option and is certainly worth a try.
Got a challenging file? Call the experienced underwriters at Kokanee Mortgage to see if a custom solution can be crafted for your client.