Monday, July 17, 2017

Single Parent Home Buying Guide Part Three: Your Ex-Partner And Mortgage Credit Problems

Separating from your partner means the chance to alter your life. If one of the changes you want to make is buying a new home, your credit and income may be a challenge.

For instance, divorce in itself doesn't hurt your credit score. However, balances can be run up and payments may have been skipped as people sort out who is responsible for what. In addition, when a two-income household becomes a one-income family, qualifying for a mortgage payment can be an issue.

Protecting Your Post-Divorce Credit

Your first move before a divorce, if possible, should be to protect your good credit. Request a free copy of your credit report from all three credit reporting bureaus at www.annualcreditreport.com.

Close or separate all your joint accounts

If your split is friendly, analyze your joint debts and determine which ex will pay each bill. Contact each creditor and find out how to convert a joint account into an individual account.

If the creditor refuses (they are under no obligation to weaken their position by doing so), you might each open new balance transfer accounts in your own names, and use them to pay off and close the joint accounts.

If the divorce is angry, and you can afford to do so, pay the joint bills now and try to recoup the money from your ex in court.

Remove your ex as an authorized user

If your former partner or spouse is listed as an authorized user on any of your accounts, cancel that access immediately.

Keep paying your bills

Pay all your bills on time, even if you have to make other sacrifices. It's temporary, and payment history is one of the most important factors in your credit score.

Set up a fraud alert or freeze your credit

If you’re concerned about your ex-spouse damaging your credit, place a fraud alert on your credit report, or completely freeze access to your credit report. You would need to unfreeze your report when you apply for new credit.

Establish independent credit

If most credit has been in your partner's name, apply for an account or two in your own. Use the credit and pay the bill in full, on time, to boost your score. You may want to open another credit account in six months to expand your credit profile.

Build or rebuild a positive credit history

Your most recent credit activity, particularly on-time payments, should improve your credit profile. Be vigilant about paying your bills.

Single Parent Mortgage: Legal Separation

There's a big difference between applying for a mortgage in your own name when you're still legally married, and applying for a home loan when you've been legally divorced.

Must be legal

First, your separation has to be documented, spelling out who is responsible for what payments, who gets access to which assets, and so on. It's very much like a divorce decree, in fact. You may have to file it with the court.

Community property states are different

In California and other community property states, government-backed mortgages like FHA demand that the non-borrowing separated spouse gets a credit check. He or she must sign paperwork acknowledging awareness of the loan and that there is no responsibility for it or ownership in the property.

The difference between a legal separation and a divorce is that a legal separation can be undone, while a divorce is final. That makes the underwriting requirements a bit trickier for mortgage lenders.

Single Parent Mortgage: Using Alimony Or Child Support To Qualify

One obstacle to qualifying for a mortgage as a single parent can be an income reduction after the split. To use court-ordered child support or alimony to qualify, in most cases, you have to show that it's reliable and will continue for at least three years.

(You're not required to disclose these payments unless you need the income to qualify for the home loan.)

Requirements when support is higher income percentage

If spousal or child support makes up more than 30 percent of your income, many lenders require that you receive support for a full year before applying. The order must require support payments for at least three years after the loan closes.

Easier when you have substantial independent income

If support is 30 percent or less of your income, you'll only need to show six months of on-time payments before the support can be counted in your income.

To prove receipt of these payments, you'll want a copy of the court order showing the payment obligation amount and expected duration.

You should also keep copies of the checks or at least deposit them separately each month so they appear on your account statements -- unless you think it will be fun asking your ex for copies of canceled checks in six months when you apply for a loan.

Now that you know what’s involved with being a single parent homebuyer, it’s time to put the whole process together.

Part 4 addresses the steps you’ll take to achieve homeownership as a single parent.

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