Full question: Should Divorce Settlements Always Require a
Refinance of the Awarded Property?
Part 2: Can The Awarded Party Refinance?
If the issue
of “should”
is resolved, what of the issue of “can?” That is, if the consensus is
that a grantee should refinance a debt, the practical question becomes, can
they qualify to do just that? What good can come to parties if a philosophical
agreement is not followed with practical action?
The question
is: Can someone turn white paper
into green money? That is, can they actually complete the refinance transaction
and close their loan in a timely manner?
It’s one
thing to have a filed or entered agreement or some judgment from a court.
That’s merely white paper – e.g. A Special
Warranty Deed with Encumbrance for Owelty of Partition and/or a Decree of Divorce that requires the
refinancing of a debt. Until a financier acts upon that agreement and produces
a loan that puts money into the hands of creditors or grantors, it remains
white paper at the court house.
WE TURN WHITE PAPER
INTO GREEN MONEY
The shortest
distance between A and B here is for the potential grantee to call me (at
817-454-4555 or email me at noel@themortgageinstitute.com). By applying for a
mortgage loan, the party and his/her attorney can be properly informed about
loan approval and the conditions required.
I receive
calls frequently from attorneys in meetings (mediation, collaboration, consultation,
etc.) who ask about one of the parties’ ability to obtain mortgage financing. THIS IS THE JOY OF MY PROFESSIONAL LIFE
. . . because this is the heart and soul of solving problems before they become
problems.
Attorneys
seem to always know the pertinent information to give me. But, so that you know
for sure what information I need to give a preliminary “Yes, that is probably
in the range of qualifying” or “No, those numbers will probably not work,” here
is a list of facts I need to know:
1.
Which
party is being awarded the house?
2.
Income
of the grantee/borrower
a.
Employment
income (length of time on job or in particular “line of work”)
b.
Support
income (and continuance; children’s ages for child support suffice)
3.
Approximate
value of house
4.
Approximate
balance on mortgage(s) - and, if one of the mortgages is a "cash out"
5.
Approximate
debts against grantee/borrower (post-divorce).
6.
Preliminary
idea of credit rating
Obviously, I
will have to take an official application, pull credit, examine documentation
and make a complete assessment before delivering a written pre-approval. But,
answers to these questions will enable me to give you a sense of whether or not
we are “in the ballpark.”
I really
encourage you to host or attend my course Credit & Mortgage Qualifying in Divorce
so that you will have a working knowledge of just a few rules that affect
divorcing clients’ ability to get financing. (It has 1.000 CLE credit hours). For
now, though, here’s a cheat sheet.
1.
Support
income can qualify if it follows these simple rules
a.
Must
develop a 3-month history (for FHA) or 6-month history (for conventional) of
support payments. Informal payments (not ordered through temporary orders or in
an MSA or in a decree) can count. So, start any time. Just document it
properly.
b.
Must
continue for 3 years after loan closing (not just after final divorce). 35 months
do not count. 36 or greater are required. Yes, it’s that stingy in
underwriting.
c.
Documentation
is critical. Funds must come from payer’s sole/separate account and deposited
into payee’s sole/separate account. We recommend one check/payment for child support
and a separate check/payment for spousal for at least the amount that is needed
or contemplated. If there is doubt, more is better because the qualifying
amount is the lesser of what is documented or what is ordered. There must be
clear evidence of payment and deposit. Think old-school – cancelled checks with
deposit receipts.
2.
New
employment income can qualify if
a.
The
borrower has 2 years or more of experience in the particular line of work
b.
The
borrower has college or trade training for a particular line of work
c.
There
has not been a significant “gap in employment.” This is the tricky one and
often comes down to the underwriter’s comfort level. If other elements of the
file are strong – like low debt ratios, low LTV (Loan To Value) ratios, large
assets, very high credit scores, strength of employment, etc. – then job gaps
create less concern.
3.
Appraisals
are critical – and yours doesn’t count. The only appraisal that is operative in
financing is the one ordered by the lender. The appraisal that was obtained by
the wife, the husband, the attorney, the judge and the mediator are irrelevant
to the financing process. So, before agreeing on a buyout figure, I highly
advise early application and ASAP appraisal ordering. We take care of that, of
course. Don’t assume that there is lots of equity in the house based on anything.
For example, some borrowers cannot finance more than 80% of their home’s value.
This is not just the case in Texas “Cash Out” (or Equity) financing wherein the
LTV is limited by law; some borrowers do not qualify for mortgage insurance (required
for most loans above 80 LTV) or second liens; and, sometimes when they may
otherwise qualify for mortgage insurance, the increased payment causes their
debt ratio to exceed allowable maximums.
Conclusion
When there is
agreement that the awarded party should refinance the mortgage (held
jointly or in the name of the grantor), the attention should immediately turn to
the question - can the party qualify for financing? Only a competent
Divorce-Lending Specialist should be trusted with this task.
I just happen
to know a Divorce-Lending Specialist. In 2002, I began developing a unique
niche that catered to family law attorneys and their clients – offering loan
approvals before final divorce so that all parties could be assured of financing.
In other words, for 12 years now, we have been “turning white paper into green
money.”
Always At
Your Service,
Noel Cookman
817-454-4555
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