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How to Get a Solo Mortgage After You Divorce

Thumbnail image for shutterstock_96106313.jpgThe negative effects of divorce on the family are well-documented. Depression is four times more prevalent in divorced people, while the children of divorced couples don't do as well in school and have higher drop-out rates than their peers with married parents, according to the National Institutes of Health. Here's one statistic that isn't quite so bleak: 46 percent of people surveyed in Credit.com's 2014 Marriage, Divorce & Credit Survey said their credit scores actually increased after divorce. It's the tedious process of separating finances and re-establishing an individual credit profile that makes getting your own mortgage more difficult after marriage. If you're trying to get a home loan after divorce, we'll help you make sense of the process.

Alimony and Child Support

Mortgage underwriting has become much more strict since 2008. Federal regulations have eliminated the entire subprime market and lenders must now follow strict, universal underwriting rules. One of those rules entails lenders making good faith efforts to determine your ability to repay the mortgage.

Alimony and child support may be your only immediate income after divorce. But lenders will take it into consideration for mortgage qualification in most situations. There must be at least six months of payment history already established, and the divorce decree must state that these payments will remain consistent for at least three years.

Those who are paying alimony and child support have different obstacles. Your debt-to-income (DTI) ratio, an important aspect in the underwriting process, will be increased by the amount you are paying. This hurdle can be offset either by picking up a part-time job or showing you have funds available beyond your salary to meet the obligations.

For instance, if you receive regular payments from an annuity or structured settlement, you may be able to sell your future payments for a lump sum of cash now. The final order from the court approving the sale could then be forwarded to your lender as proof of additional income. The goal is to get your DTI to 40 percent or less. This ensures the best rates and terms for a mortgage.

Your Former Mortgage

If you and your former spouse had a mortgage together, the bank approved that loan based on both of your incomes. The aforementioned tighter underwriting requirements make it difficult to successfully remove one of your names from the mortgage and refinance it. But as long as this obligation appears on your credit report, you can forget about obtaining a mortgage of your own.

The easiest remedy is selling the house. Use the proceeds to pay off the loan, and the two of you can move on with your lives. This option, however, is only for those who are not currently underwater on their mortgage.

A short sale is possible for those in the latter situation. That is when the bank agrees to accept a lower payoff amount on the mortgage to avoid foreclosure and the hassles that come with it. The caveat is that a short sale will lower your credit score and make it more difficult to get another mortgage.

Improve Your Credit Score

Your FICO score is heavily influenced by payment history and the amounts you owe on open accounts. Those who have never had their own credit because they were married for so long will need to start from scratch. The good news is that it takes only six months to establish good credit from nothing.

Get a secured credit card if your FICO score is not good enough for a regular account. Finance a cheap used car and pay it off in a year. Different credit types are also a factor in determining your score, so the more diverse the better.

For those who have accounts left behind from the divorce, pay down the ones with the highest balances. If you decide to close some of the accounts, start with the newest ones. Length of credit, or the age of accounts, also influences your FICO score. Closing an old account can significantly decrease your score.

Couples who know divorce is imminent should consider a legal separation first. That gives both parties time to establish their own accounts and separate all joint accounts.

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