Occasionally Borrowers will either be in the process of or have completed divorce proceedings. In addition, depending on state law, there can be a legal separation between spouses that is not a divorce. When a borrower is involved in any of these proceedings, it can affect whether a borrower is approved for a loan; and if approved, the documentation must be supplied. Here are the bullet points for each of these situations.
- Divorced – A borrower who is legally divorced is no longer married, and they will indicate on their loan application that they are single. The borrower will need to provide a copy of the divorce decree along with any child support or alimony agreements that were drawn up as part of the divorce. When the borrower closes on the loan, the loan will list that the borrower is either a “single” man or woman, or in some jurisdictions, an “unmarried” man or woman. Either is acceptable for loan closing purposes.
- Separated – In some states (not all) a spouse can be legally separated from their spouse. They are not actually divorced, but they are still legal married. However, they have separated one from the other and there is a separation agreement. In these cases, the borrower will state that they are married on the loan application. However, they will need to provide a copy of the separation agreements approved by the courts as well as any separation maintenance agreements and child support orders. Sometimes people will state that they are “separated”; however, if the state does not recognize legal separation, the borrower is still married, and the loan must proceed as if the spouses are still married to each other. Any agreements executed by the separated spouses are not legally binding (not a court order), and therefore any support agreements are legally enforceable and cannot be used for income, nor can they be considered a liability. State laws vary on this subject, so it may be important to seek clarification from qualified legal counsel for borrowers in this situation.
- Married but Filing for Divorce – Sometimes spouses are in the middle of divorce proceedings when one or the other applies for a home loan. When this occurs, the borrower is involved in litigation, and they will need to declare as such on the loan application. This may or may not be a problem with the loan process depending on the situation. If the borrower has reached a property settlement, and the question of any alimony or child support has been resolved, the loan may be able to move forward. However, any property settlements or support agreements must have been ruled upon by the courts and recorded. If this has not occurred, the loan cannot move forward.
Anytime a marital dissolution is taking place, it presents challenges to the mortgage process. Because every situation is unique, it is important to seek guidance from one of the mortgage professionals at Googain. Contact your Googain Loan Officer for more information on these situations.