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Mortgage assumption after divorce (PMI, loan, approved, credit) - Mortgages -Lenders, loans, financing, rates, foreclosures, short-sales, brokers, credit score, deed, lien, refinancing, borrowers - Ci

08-25-2011, 07:59 PM
 

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My spouse and I are in the process of getting a divorce just 8 months after buying a house. We are both on the mortgage and were approved for a 300K conventional loan at 4.75% based on both of our income. I am considering keeping the house and paying my spouse half of the down payment and assuming the loan if I can qualify. My questions are: 1. Are the requirements for assuming a loan after a divorce as strict as for a new loan? I'm particularly concerned about the income requirement, as my debt to income ratio would be about 40-45% (include taxes and insurance with the monthly revolving debt). I have excellent credit, no debt (outside of the mortgage) and no kids. I would also have about 6 months of living expenses in savings. 2. I'm considering switching jobs by the end of the year (I've been at my current job for about 7 years). Would that affect my eligibility and should I then wait (the new job would be in the same industry and probably for a higher salary)? 3. Do most banks offer that option (mortgage assumption rather than refinance)? Our loan is with Wells Fargo.

Any information you might have on the assumption process (particularly after a divorce) would be helpful.

Reply With Quote Quick reply to this message 08-25-2011, 08:05 PM
 

Location: The Triad (nc)

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Unless YOUR income alone is enough to carry the whole thing... The situation you appear to be in is so common today they have made a TV sitcom about it. If it didn't feature Fran Drescher I might watch it.
Happily Divorced Season 1 Episode 1 Part 1 - YouTube Reply With Quote Quick reply to this message 08-25-2011, 08:12 PM
 

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Quote:

Originally Posted by MrRational

Unless YOUR income alone is enough to carry the whole thing...

That's exactly my question. Would 40-45% debt to income ratio be acceptable? Just trying to figure out if it even makes sense to entertain the thought... Reply With Quote Quick reply to this message 08-25-2011, 09:03 PM
 

Location: The Triad (nc)

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Quote:

Originally Posted by sasha75

That's exactly my question. Would 40-45% debt to income ratio be acceptable? Just trying to figure out if it even makes sense to entertain the thought...

I'm not a mortgage guy and can't answer anything specific. My observations are that with so many mortgages in flux and problematic that unless your ex insists on pushing the full on refi *now* and by that also be willing to cooperate with remaining on the mortgage (which when push comes to shove he'll soon learn he has little choice in anyway)... well, you might just be able to establish a track record of payments without him that LATER ON (6-12 mos?)... you could go to the mortgage company with and then maybe make it all official: put the mortgage in your name alone.

The problem:

You'll need a steady, reliable, *documented* way to make up for his contribution... and show that you alone have the difference in income needed from other sources (eg housemate/tenant)... None of that will get him any of his share of the buy in or deposit money back... but (another push that will soon show it has comes to shove) that ship has sailed. Bottom line? Can the two of you get along well enough to be adult and treat the business of this as just business?

If you can... in a year or so it might all work out.

Reply With Quote Quick reply to this message 08-25-2011, 09:23 PM
 

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Thanks for the detailed response MrRationale. It is actually quite helpful!

I'm curious to know what others think as far as the process (income requirement, employment history, assumption process vs refinance, etc.?).

Reply With Quote Quick reply to this message 08-25-2011, 09:52 PM
 

Location: Town of Huntington, NY

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Quote:

Originally Posted by sasha75 Thanks for the detailed response MrRationale. It is actually quite helpful!

I'm curious to know what others think as far as the process (income requirement, employment history, assumption process vs refinance, etc.?).

Unless you have an FHA mortgage, I wholeheartedly doubt your mortgage is assumable (and you stated you have a conventional mortgage). Just curious, why should the mortgage requirements after a divorce be easier?? For the lender, it's a business transaction - period. Excellent credit and no other debt is great and so is the savings cushion for 6 months of living expenses! First question - what is your current equity? I don't know in what part of the country you are, but if you're in a declining market (and most of us are), the current appraised value may be less than when you purchased your home jointly. In that scenario, you would possibly have to count on PMI which most likely would make it impossible to keep the house because that would increase your payments. If you still have 20% equity based on the bank appraisal, 40-45% DTI would be tough at best; however, you could go to a local Credit Union--they've been known to be a bit more flexible on occasion; still a bit more of the old "personal touch". Next question(s) - when do expect the divorce to be final? And do you have the liquid funds to buy out your spouse's half of the downpayment (in addition to new closing costs and living expenses)? With regard to the employment situation, the previous question comes into play. Do you expect the divorce to be final before or after you plan on starting the new job? Makes a difference.

I have some good contacts at Wells; don't know what State you're in, but I could give you contact info and you could call and ask questions, if you like... (No, nothing in it for me and I don't know your name anyway )

If you end up deciding to continue to own the property jointly after the divorce, please be sure to have your attorney spell out the details of the buy-out clearly and explicity to your mutual satisfaction! I deal primarily with divorcing/divorced clients and I have heard horror stories and have seen agreements that scream of total lack of financial comprehension by the legal representative.

Good luck!

Reply With Quote Quick reply to this message 08-25-2011, 10:48 PM
 

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Quote:

First question - what is your current equity?
We bought the house just a few months ago and put about 30% down. Assuming the value hasn't gone down from a few months ago, the equity should equal our down payment (right?).

Quote:

Next question(s) - when do expect the divorce to be final?
And do you have the liquid funds to buy out your spouse's half of the downpayment (in addition to new closing costs and living expenses)?
I expect the divorce to be final by the end of the year/early 2012 at the latest. And yes, I will have the funds to buy out my spouse, etc.

Quote:

I have some good contacts at Wells; don't know what State you're in, but I could give you contact info and you could call and ask questions, if you like... (No, nothing in it for me and I don't know your name anyway )
I will send you a DM with my location and maybe you can send me some contacts.

Thanks!

Reply With Quote Quick reply to this message 08-25-2011, 11:05 PM
 

Location: Town of Huntington, NY

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Quote:

Originally Posted by sasha75

We bought the house just a few months ago and put about 30% down. Assuming the value hasn't gone down from a few months ago, the equity should equal our down payment (right?).

If you're in my area, you're still in a declining market with very very few exceptions. However, since you put down 30%, most likely you will still have at least 20% and not be faced with PMI. Also, the date the divorce action was started should be used as the valuation date for $$ purposes. Let's say you went into contract in January and closed by April, and the divorce action started in June, then the market value of June should be used to establish your buy-out amount. Example: house bought for $400,000, downpayment $120,000 = mortgage of $280,000 and equity of $120,000 value as of June $370,000 = mortgage of $280,000 and equity of $90,000 you both lost equity during the marriage, so instead of owing $60K (half of $120K), you'd owe your spouse only $45K (half of $90K) that is if all gets split 50/50...

Might not be a bad idea for us to talk

Quote:

Originally Posted by sasha75 I expect the divorce to be final by the end of the year/early 2012 at the latest. And yes, I will have the funds to buy out my spouse, etc. Can you please send me a DM. Actually I think I'm in your area (I recognize your name from posts I've seen on the LI forum).

Thanks!

Will send you a DM tomorrow - have all the necessary info in my office! Reply With Quote Quick reply to this message 08-26-2011, 08:45 AM
 

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You cannot assume the mortgage. You will have to refinance in just your name. With 20%+ equity, 40-45% DTI is not a problem. 45% is basically the new limit.

Your divorce will have to be final before you can close (i.e. signed off of by the judge).

Are you paying off the ex's 15% with cash out of the new mortgage? This could pose a problem as you would then only have 15% equity. Sounds like you could pull out 10% in equity, less any costs, and cover the rest in cash. Maybe negotiate that she gets 10% back in cash instead of the 15%.

Reply With Quote Quick reply to this message 08-26-2011, 08:54 AM
 

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Thanks, Tim. This recent article from the New York Times seems to suggest that assuming the loan in my name alone was a viable, less-known option.

http://www.nytimes.com/2011/04/10/re...g-divorce.html

Maybe only for certain types of loans (FHA, like Elke said earlier)? In any case, thanks for the info. Very helpful. And glad to know my DTI ratio won't be an issue.

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Page 2

08-26-2011, 09:00 AM
 

Location: Austin

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Assuming a mortgage is the same as getting a completely new loan. As someone else stated, more than likely, your loan is not even assumable, but if it is, the only thing that is assumable are the terms. You would still have to completely qualify for those terms. Rates have come down considerably since your 4.75% so you wouldn't want to keep your terms.

But also, your ratios are too high. No one is coming out and saying it, but they are. Why does it matter if he remains on the loan? Your divorce decree will state who owns the property and who is responsible, so leaving it "as is" is the least expensive thing to do as it will cost you all your closing costs again to refinance it.

Reply With Quote Quick reply to this message 08-26-2011, 09:10 AM
 

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Quote:

Assuming a mortgage is the same as getting a completely new loan.
I get that, but my understanding is that there is a huge difference in cost (it is much cheaper to assume a loan than do a full refinance, reason why I would like to look into it).

Quote:

But also, your ratios are too high. No one is coming out and saying it, but they are. Why does it matter if he remains on the loan?
It matters because if my ex wants to purchase a property in the near future (which is highly likely), it might become an issue (right?). Reply With Quote Quick reply to this message 08-26-2011, 09:16 AM
 

Location: Austin

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Quote:

Originally Posted by sasha75 I get that, but my understanding is that there is a huge difference in cost (it is much cheaper to assume a loan than do a full refinance, reason why I would like to look into it).

It matters because if my ex wants to purchase a property in the near future (which is highly likely), it might become an issue (right?).

No, the costs of assuming a loan are not less. It still has to go through underwriting, processing, etc... same fees.

If he wants to buy a house, he will show his divorce decree and how he is not responsible for the mortgage. Millions of divorce people do it all the time.

Reply With Quote Quick reply to this message 08-26-2011, 12:59 PM

 

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Quote:

Originally Posted by FalconheadWest No, the costs of assuming a loan are not less. It still has to go through underwriting, processing, etc... same fees.

If he wants to buy a house, he will show his divorce decree and how he is not responsible for the mortgage. Millions of divorce people do it all the time.

No divorcing spouse in their right mind would leave the mortgage or any other joint debt "as is".

45% DTI may put a borrower under pressure to meet their obligations, however it is totally approvable.

Reply With Quote Quick reply to this message 08-26-2011, 01:22 PM
 

Location: Austin

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Quote:

Originally Posted by TimtheGuy No divorcing spouse in their right mind would leave the mortgage or any other joint debt "as is".

45% DTI may put a borrower under pressure to meet their obligations, however it is totally approvable.

The vast MAJORITY of home owners do NOT refinance when they get a divorce. The spouse signs a quitclaim to the property and the decree spells out who is responsible. What world do you live in where 60+% of people are getting divorced and they're all refinancing their homes? It's not happening!

And 45% DTI? You're talking high risk borrower who is going to have an even higher interest rate because of the high risk and that then prices a lot of people further out of the market for what they can afford, and the foreclosure cycle continues.

Reply With Quote Quick reply to this message 08-26-2011, 01:57 PM
 

Location: Town of Huntington, NY

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Quote:

Originally Posted by FalconheadWest

The vast MAJORITY of home owners do NOT refinance when they get a divorce. The spouse signs a quitclaim to the property and the decree spells out who is responsible. What world do you live in where 60+% of people are getting divorced and they're all refinancing their homes? It's not happening!
.

That's for sure! Reply With Quote Quick reply to this message 08-26-2011, 02:01 PM
 

Location: Town of Huntington, NY

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Quote:

Originally Posted by FalconheadWest

If he wants to buy a house, he will show his divorce decree and how he is not responsible for the mortgage. Millions of divorce people do it all the time.


People who get divorced, generally want things over and done with, except in cases where it might benefit the children... Reply With Quote Quick reply to this message 08-26-2011, 02:13 PM

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Location: Richardson, TX

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Quote:

Originally Posted by FalconheadWest

The vast MAJORITY of home owners do NOT refinance when they get a divorce. The spouse signs a quitclaim to the property and the decree spells out who is responsible. What world do you live in where 60+% of people are getting divorced and they're all refinancing their homes? It's not happening!

You're probably right that the majority do not refinance. However, if one qualifies, it's certainly in the best interest of the spouse NOT getting the house that the spouse getting house refi. The divorce judge can say you don't own the house anymore, but unfortunately you can't divorce your mortgage. If the one who keeps the house ends up in delinquency or foreclosure, the credit of the ex who may not have lived there for 5 or 10 years still gets trashed. Reply With Quote Quick reply to this message 08-26-2011, 02:39 PM
 

Location: Town of Huntington, NY

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Quote:

Originally Posted by Debsi

You're probably right that the majority do not refinance. However, if one qualifies, it's certainly in the best interest of the spouse NOT getting the house that the spouse getting house refi. The divorce judge can say you don't own the house anymore, but unfortunately you can't divorce your mortgage. If the one who keeps the house ends up in delinquency or foreclosure, the credit of the ex who may not have lived there for 5 or 10 years still gets trashed.


Reply With Quote Quick reply to this message 08-26-2011, 04:48 PM
 

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Quote:

Originally Posted by FalconheadWest The vast MAJORITY of home owners do NOT refinance when they get a divorce. The spouse signs a quitclaim to the property and the decree spells out who is responsible. What world do you live in where 60+% of people are getting divorced and they're all refinancing their homes? It's not happening!

And 45% DTI? You're talking high risk borrower who is going to have an even higher interest rate because of the high risk and that then prices a lot of people further out of the market for what they can afford, and the foreclosure cycle continues.

Every person I know who gets divorced has refinanced, usually under court order. If not, the spouse who leaves is still on the hook for the current loan. This debt would be counted against them for qualifying for a new home no matter if the decree states they are not responsible for the debt or not. If the spouse who stays misses a payment, do you think it hits the spouse who left's credit? Yep. Same with any other debts. The decree does not trump signed notes.

fyi-45% DTI does not add anything to the interest rate. You can qualify for an A-paper Fannie/Freddie/FHA loan at 45% DTI at the same exact terms as the borrower who has a 20% DTI.

If a borrower gets divorced and does not force the other spouse to refinance to get their name off the debt, they are a not very bright. You don't get to say...look here mr. creditor....the judge says she is responsible for the debt. The creditor will say....too bad...we have your both your signatures on the note here and we are holding you both responsible.

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Page 3

08-26-2011, 05:01 PM
 

Location: Town of Huntington, NY

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Quote:

Originally Posted by TimtheGuy

Every person I know who gets divorced has refinanced, usually under court order.

It may depend on what part of the country you're in. In my area for instance, two income families are the norm, and it's therefore very difficult to qualify with one income only, particularly if the spouse remaining in the house is the wife--who more often than not, is the lower income spouse (that's changing, but slowly).
Bottom line, a refi is often not possible for financial reasons. Reply With Quote Quick reply to this message 08-26-2011, 05:12 PM
 

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I've actually gone through this. Here's my experience. We lived in Kansas. When we divorced, my wife wanted to keep and live in our house. We financed it through Wells Fargo a year before our divorce and both our names were on the loan. We got the quitclaim deed registered at the courthouse. After the divorce was finalized, we did a mortgage assumption with WF which removed me from the loan. After that process was complete, the loan stopped showing up on my credit report. I know because I bought a home myself shortly afterwards and had no trouble getting approved. About a year after the assumption, my wife let the house go into foreclosure and I was initially also served with legal papers suing me for the defaulted loan. Luckily, I had all my ducks in order and was able to provide the paperwork for the quitclaim and the mortgage assumption to the courts.

I was notified by Wells Fargo that they were removing me from the lawsuit. I'm thankful I got the assumption and not just the quitclaim deed. It made it so much easier to keep from getting entangled in my ex-wife's mess.

Reply With Quote Quick reply to this message 08-26-2011, 05:16 PM
 

Location: Town of Huntington, NY

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Quote:

Originally Posted by mandavaran We got the quitclaim deed registered at the courthouse. After the divorce was finalized, we did a mortgage assumption with WF which removed me from the loan. After that process was complete, the loan stopped showing up on my credit report. I know because I bought a home myself shortly afterwards and had no trouble getting approved.

\.

Unfortunately, not every ex-spouse qualifies (financially) for the mortgage assumption Reply With Quote Quick reply to this message 08-27-2011, 06:17 AM
 

Location: Wake Forest, NC

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Quote:

Originally Posted by TimtheGuy Every person I know who gets divorced has refinanced, usually under court order. If not, the spouse who leaves is still on the hook for the current loan. This debt would be counted against them for qualifying for a new home no matter if the decree states they are not responsible for the debt or not. If the spouse who stays misses a payment, do you think it hits the spouse who left's credit? Yep. Same with any other debts. The decree does not trump signed notes.

fyi-45% DTI does not add anything to the interest rate. You can qualify for an A-paper Fannie/Freddie/FHA loan at 45% DTI at the same exact terms as the borrower who has a 20% DTI.

If a borrower gets divorced and does not force the other spouse to refinance to get their name off the debt, they are a not very bright. You don't get to say...look here mr. creditor....the judge says she is responsible for the debt. The creditor will say....too bad...we have your both your signatures on the note here and we are holding you both responsible.


Let's not forget the rest of joint credit- cars, credit cards, student loans etc,etc.etc..... All need to be refinanced into 1 persons name. I can't tell you how many times I've heard "thats not my debt the judge said he/she had to pay it", doesn't matter. You signed the application you are resposnsible until it is paid in full. Reply With Quote Quick reply to this message 08-28-2011, 12:47 AM
 

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Quote:

Originally Posted by dad2jules

Let's not forget the rest of joint credit- cars, credit cards, student loans etc,etc.etc..... All need to be refinanced into 1 persons name. I can't tell you how many times I've heard "thats not my debt the judge said he/she had to pay it", doesn't matter. You signed the application you are resposnsible until it is paid in full.

Reply With Quote Quick reply to this message 11-04-2011, 09:07 AM
 

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I have a similar situation. I was divorced in 2009, tried to refi in 2010 but was denied because I pay out the behind in child support... is it likely that I will be approved for a loan assumption? My ex is still on the loan, her sole income is child support and now shes having trouble getting credit because it looks like she only has 100 bucks a month left over after the mortgage. Will the loan assumption take the home loan off of her credit? I read some where that it would just remove her from the title, but that it would still keep her liable if push came to shove.... ?

My decree states

Quote:

"IT IS ORDERED AND DECREED that the husband, Super Mario Wonder Willy Wonka, is awarded the following as his sole and seperate property, and the wife is divested of all right, title and interest, and claim in and to that property:

H-1. The following real propert, including but limited to any escrow funds, prepaid insurance, utility deposits, keys, house plans, home security access and code, garage door opener, warranties and service contracts and title and closing documents: (Address listed)

I dont read anything that says I HAVE to take her off -- I DONT WANT HER ON IT, but I am also trying to start a new life, looking to buy a house in the next six months with my current wife (jury is still out if it it will be in just one of our names lol) Reply With Quote Quick reply to this message Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.

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