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How Can Adverse Events Like Divorce Impact Your Mortgage?

How Can Adverse Events Like Divorce Impact Your Mortgage?

A person's ability to make mortgage payments may be significantly impacted by adverse circumstances. These occurrences might result in financial difficulty and make it challenging for homeowners to meet their mortgage commitments. 


How Does My Divorce Affect My Mortgage? 

The outcome of your mortgage after divorce will depend on the conditions of your divorce settlement and the property's ownership status. Here are a few possible scenarios: 

  • Both Parties Retain Ownership of the Property

If both parties agree to continue paying mortgage payments and keep the property, the mortgage will remain unchanged. The parties must agree on distributing the mortgage payments and other property-related obligations. 

  • One Party Retains Ownership

If one party wishes to keep the property and the other agrees, the party maintaining the property must refinance the mortgage into their name. It could need a new credit check and result in a modification of the mortgage rate and terms. 

  • The Property Has Been Sold

If both parties agree to sell the property, the earnings will get used to paying off the mortgage and other outstanding debts. The terms of the divorce agreement will distribute the remaining proceeds. 

It is essential to remember that every divorce settlement is unique, and the outcome of your mortgage may depend on circumstances and agreements. It is essential to consult with both a divorce attorney and a mortgage expert to comprehend the effects of a divorce on your mortgage. 
 

Does Divorce's Mortgage Holder Matter? 

Shane Whitteker is the owner and chief broker at State College mortgage broker Principle Home Mortgage. Throughout his 20 years as a mortgage broker, he has helped some of his clients through debt issues resulting from various circumstances.

“It matters in the sense that if the person whose name is on the mortgage doesn’t get to keep the house,” Whitteker says. “In that scenario, that party will typically want the home to be sold or refinanced so their name comes off the mortgage and the mortgage is no longer reported on their credit report.” 

To understand the effects of a divorce on your mortgage and to plan accordingly, it is essential to speak with a divorce attorney and a mortgage expert. 
 

Should I Notify The Mortgage Provider of My Divorce? 

It's probably a good idea to ask your divorce attorney whether to let your mortgage broker know if a divorce is imminent. They’ll be able to help you avoid any potential issues. If all parties names are on the mortgage and the terms have not changed, there is probably nothing your mortgage lender will do. However, it is essential that the mortgage payments get made on time and that both parties understand their respective responsibilities. 
 

How Can My Ex-Spouse Be Removed From The Mortgage After The Divorce? 

Yes, removing a name from a mortgage is doable. Refinancing is removing a name from a mortgage following a divorce. You'll need to refinance the loan in your name to remove your ex-spouse's name from the mortgage. It involves obtaining a new mortgage loan and paying off the current one. Refinancing your mortgage may be challenging depending on your credit score, income, and property value. Typically, the following phases get included in the refinancing process: 

  • Requesting A New Loan

Those who choose to retain the property must apply for a new mortgage loan. It will necessitate a credit check and proof of income, assets, and liabilities. 

  • Repaying The Current Loan

Upon approval of the new loan, the current loan will be repaid using the profits from the new loan. 

  • The Transfer of the Title

The property title will be transferred to the individual whose name is on the new mortgage loan and who is keeping the property. 

It is crucial to note that refinancing a mortgage can be a complicated procedure, and you're well advised to seek the aid of a mortgage professional or a divorce attorney. In addition, you must comprehend the new loan's terms and conditions to choose the best mortgage for you – whether it’s a conventional mortgage, VA loan, USDA mortgage or FHA mortgage. 
 

Can A Divorce Compel Me To Sell My Home? 

It depends on the specifics of your divorce agreement and its stipulations. In certain instances, a court may mandate the sale of a jointly owned property as part of a divorce settlement if the parties cannot agree on dividing the property. This decision is taken with both parties and, if any, children's best interests in mind. 

If the property is only in one party's name, the court must consider the contributions of both parties, including non-monetary contributions such as child-rearing, homemaking, and property repairs, when calculating the property division. 

It is crucial to highlight that choosing to sell a property during a divorce is not usually based solely on financial factors. A court may also examine emotional attachment to the property, each party's ability to afford the property, and the best interests of any related children. 

In the event of a forced sale, the revenues will be distributed following the terms of the divorce decree and the court's order. It is crucial to consult a divorce attorney to comprehend the legal ramifications of a forced sale and to plan properly. 
 

Does My Marriage Effect My Application For A Mortgage? 

Your marital status has no direct bearing on your ability to obtain a mortgage. Nonetheless, your eligibility for a mortgage may be indirectly affected, depending on your financial condition and the terms of your divorce settlement. If you are going through a divorce or have recently gotten divorced, you may encounter obstacles when applying for a mortgage, including: 

  • A Reduction in Your Income

If you're going through a divorce, you may have to split your income with your ex-spouse, making it more difficult to qualify for a mortgage. 

  • Credit Problems

Divorce can be stressful and may result in missed payments, which can negatively affect your credit score. 

  • Debt

Additionally, divorce might result in an increase in debt, which can impact your debt-to-income ratio and make it more difficult to qualify for a mortgage. 

  • Real Estate Ownership

If the house is in your ex-spouse's name and you are not on the mortgage, it may not be easy to demonstrate that you have sufficient income to pay it. Noting that each lender has its unique criteria and requirements is essential. It is prudent to speak with a mortgage consultant or a divorce attorney to understand the ramifications of your marital status on your ability to obtain a mortgage and plan properly. 
 

Is Assuming Ownership Of A Home After Divorce Difficult? 

“If you are capable of financing the home and making payments, there really are no other obstacles to assuming ownership,” Whitteker says. “This all comes down to the divorce negotiation. I am simply speaking about legal situations here. Obviously in divorce there are other factors to consider but there should not be significant obstacles if you are financially capable.” 

It is essential to speak with a mortgage professional or a divorce attorney to understand the ramifications of resuming home ownership after a divorce and plan properly.  


Is My Spouse Entitled To Half Of The Equity In Our Home Upon Divorce? 

Following a divorce, the allocation of equity in a jointly owned property depends on your settlement's unique circumstances and terms, as well as where you live. In most instances, the equity in a jointly owned property is divided evenly between both parties, which is not always a 50-50 split. 

The court will evaluate a variety of variables, including the length of the marriage, the contributions of both parties to the property, and each party's financial requirements. In addition to monetary contributions, the court may consider non-monetary efforts such as child-rearing, homemaking, and property maintenance. 

The court's decision will be based on each case's facts and circumstances. The distribution of equity in a jointly owned property may not be split evenly between the parties. It is advisable to consult a divorce attorney to comprehend the legal ramifications of equity distribution and to formulate an appropriate strategy. 
 

I Am Currently Unemployed and Unable to Pay My Mortgage. What Will Happen?  

Losing your job can be difficult and upsetting, and it can make it difficult to make your mortgage payments. However, you have access to several services to assist you in getting through this difficult period. Here are some possible actions: 

  • Contact Your Lender

It is essential to contact your lender immediately to explain your position. They may be able to provide you with choices for relief, such as loan modification, forbearance, or support programs for those experiencing hardship. These choices may temporarily cut or postpone your mortgage payments to assist you in regaining financial stability. 

  • Seek Unemployment Benefits

You may be able to apply for unemployment benefits to help you pay your costs while you seek new work if you qualify. 

  • Consider Alternative Sources of Income

You might be able to obtain a part-time job or freelance employment to supplement your income while you search for a new position. 

  • Prioritize Your Expenses

You may have to decide which bills to pay and which to defer. You must prioritize your mortgage payments and other vital obligations to avoid losing your home. 

  • Attempt to Obtain Financial Aid

Non-profit groups, government initiatives, and philanthropic organizations may be able to offer financial aid. 

“The first thing you should do is see if there is an option for forbearance until you can get another job. This is not a long-term solution, but you may get a few months,” Whitteker says. “Next, see if you can get a mortgage modification. Banks prefer not to foreclose in most circumstances. If you can’t make anything work regarding modification or forbearance, the bank will start foreclosure proceedings. You can still work towards a modification of your mortgage even after the foreclosure process starts.”  

Whitteker recommends preserving as much equity as you can.  

“If you have equity in your home, you really need to meet with a real estate agent early on in this process to consider selling your home prior to foreclosure. Don’t lose your equity if you can avoid it.” 

It's essential to remember that it's preferable to move quickly and seek assistance proactively, as this can help lessen the impact on your mortgage and financial condition. Not all lenders offer these loan relief options. 
 

At Age 62, A Chronic Illness Stops Me from Working. Now I Am Having Trouble Paying My Mortgage. How Can I? Exist Options? 
 
Two options are you could sell your home, or you could look into a reverse mortgage. Another commonly used term for reverse mortgage is HECM (home equity conversion mortgage). A reverse mortgage will allow you to stay in the home without having to make a monthly payment. Your balance will increase each month, reducing the amount of equity in your home. So, you still pay interest in the form of an increasing balance, but you don’t make a physical payment each month. You do have to be 62 years or older to do this. 

  • Contact Your Lender 

It is essential to contact your lender immediately to explain your position. They may be able to provide you with choices for relief, such as loan modification, forbearance, or support programs for those experiencing hardship. These choices may temporarily cut or postpone your mortgage payments to assist you in regaining financial stability. 

  • Seek Out Support Programs

There may be government-supported help programs for homeowners experiencing financial trouble due to chronic disease. These programs may provide financial assistance or choices for a loan modification. 

  • Look into Reverse Mortgages

If you are 62 or older and have a substantial amount of equity in your home, you may be able to use a reverse mortgage to access that equity and use it to cover your living expenses and mortgage payments. 

  • Sell Your Residence

If you cannot make your mortgage payments and cannot locate an appropriate relief alternative, you may need to consider selling your house. It can be a challenging choice, but it may be necessary to prevent foreclosure. 

It's essential to remember that it's preferable to move quickly and seek assistance proactively, as this can help lessen the impact on your mortgage and financial condition. Not all lenders offer these loan relief options; some may need documentation or proof of the adverse event. In addition, it is vital to obtain the assistance of a financial expert or a housing counselor who can help you weigh the benefits and drawbacks of each alternative. 

To learn more about recovering from an adverse event to buy a home, contact State College mortgage broker Principle Home Mortgage at (814) 308-0959 

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