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Old 08-25-2011, 06:59 PM
 
8 posts, read 125,620 times
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Default Mortgage assumption after divorce

My spouse and I are in the process of getting a divorce just 8 months after buying a house. We are both on the mortgage and were approved for a 300K conventional loan at 4.75% based on both of our income. I am considering keeping the house and paying my spouse half of the down payment and assuming the loan if I can qualify. My questions are:

1. Are the requirements for assuming a loan after a divorce as strict as for a new loan? I'm particularly concerned about the income requirement, as my debt to income ratio would be about 40-45% (include taxes and insurance with the monthly revolving debt). I have excellent credit, no debt (outside of the mortgage) and no kids. I would also have about 6 months of living expenses in savings.
2. I'm considering switching jobs by the end of the year (I've been at my current job for about 7 years). Would that affect my eligibility and should I then wait (the new job would be in the same industry and probably for a higher salary)?
3. Do most banks offer that option (mortgage assumption rather than refinance)? Our loan is with Wells Fargo.

Any information you might have on the assumption process (particularly after a divorce) would be helpful.
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Old 08-25-2011, 07:05 PM
 
Location: The Triad (nc)
17,082 posts, read 20,967,993 times
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Unless YOUR income alone is enough to carry the whole thing...

The situation you appear to be in is so common today they have made a TV sitcom about it.
If it didn't feature Fran Drescher I might watch it.


Happily Divorced Season 1 Episode 1 Part 1 - YouTube
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Old 08-25-2011, 07:12 PM
 
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Quote:
Originally Posted by MrRational View Post
Unless YOUR income alone is enough to carry the whole thing...
That's exactly my question. Would 40-45% debt to income ratio be acceptable? Just trying to figure out if it even makes sense to entertain the thought...
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Old 08-25-2011, 08:03 PM
 
Location: The Triad (nc)
17,082 posts, read 20,967,993 times
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Quote:
Originally Posted by sasha75 View Post
That's exactly my question. Would 40-45% debt to income ratio be acceptable? Just trying to figure out if it even makes sense to entertain the thought...
I'm not a mortgage guy and can't answer anything specific.

My observations are that with so many mortgages in flux and problematic that unless your ex insists on pushing the full on refi *now* and by that also be willing to cooperate with remaining on the mortgage (which when push comes to shove he'll soon learn he has little choice in anyway)...

well, you might just be able to establish a track record of payments without him that LATER ON (6-12 mos?)...
you could go to the mortgage company with and then maybe make it all official: put the mortgage in your name alone.

The problem:
You'll need a steady, reliable, *documented* way to make up for his contribution...
and show that you alone have the difference in income needed from other sources (eg housemate/tenant)...

None of that will get him any of his share of the buy in or deposit money back...
but (another push that will soon show it has comes to shove) that ship has sailed.

Bottom line? Can the two of you get along well enough to be adult and treat the business of this as just business?
If you can... in a year or so it might all work out.
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Old 08-25-2011, 08:23 PM
 
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Thanks for the detailed response MrRationale. It is actually quite helpful!

I'm curious to know what others think as far as the process (income requirement, employment history, assumption process vs refinance, etc.?).
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Old 08-25-2011, 08:52 PM
 
Location: Huntington, NY
7,589 posts, read 10,132,904 times
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Quote:
Originally Posted by sasha75 View Post
Thanks for the detailed response MrRationale. It is actually quite helpful!

I'm curious to know what others think as far as the process (income requirement, employment history, assumption process vs refinance, etc.?).

Unless you have an FHA mortgage, I wholeheartedly doubt your mortgage is assumable (and you stated you have a conventional mortgage). Just curious, why should the mortgage requirements after a divorce be easier?? For the lender, it's a business transaction - period.
Excellent credit and no other debt is great and so is the savings cushion for 6 months of living expenses!

First question - what is your current equity?
I don't know in what part of the country you are, but if you're in a declining market (and most of us are), the current appraised value may be less than when you purchased your home jointly. In that scenario, you would possibly have to count on PMI which most likely would make it impossible to keep the house because that would increase your payments.
If you still have 20% equity based on the bank appraisal, 40-45% DTI would be tough at best; however, you could go to a local Credit Union--they've been known to be a bit more flexible on occasion; still a bit more of the old "personal touch".

Next question(s) - when do expect the divorce to be final?
And do you have the liquid funds to buy out your spouse's half of the downpayment (in addition to new closing costs and living expenses)?

With regard to the employment situation, the previous question comes into play. Do you expect the divorce to be final before or after you plan on starting the new job? Makes a difference.

I have some good contacts at Wells; don't know what State you're in, but I could give you contact info and you could call and ask questions, if you like... (No, nothing in it for me and I don't know your name anyway )

If you end up deciding to continue to own the property jointly after the divorce, please be sure to have your attorney spell out the details of the buy-out clearly and explicity to your mutual satisfaction! I deal primarily with divorcing/divorced clients and I have heard horror stories and have seen agreements that scream of total lack of financial comprehension by the legal representative.

Good luck!
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Old 08-25-2011, 09:48 PM
 
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Quote:
First question - what is your current equity?
We bought the house just a few months ago and put about 30% down. Assuming the value hasn't gone down from a few months ago, the equity should equal our down payment (right?).

Quote:
Next question(s) - when do expect the divorce to be final?
And do you have the liquid funds to buy out your spouse's half of the downpayment (in addition to new closing costs and living expenses)?
I expect the divorce to be final by the end of the year/early 2012 at the latest. And yes, I will have the funds to buy out my spouse, etc.

Quote:
I have some good contacts at Wells; don't know what State you're in, but I could give you contact info and you could call and ask questions, if you like... (No, nothing in it for me and I don't know your name anyway )
I will send you a DM with my location and maybe you can send me some contacts.

Thanks!
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Old 08-25-2011, 10:05 PM
 
Location: Huntington, NY
7,589 posts, read 10,132,904 times
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Quote:
Originally Posted by sasha75 View Post
We bought the house just a few months ago and put about 30% down. Assuming the value hasn't gone down from a few months ago, the equity should equal our down payment (right?).
If you're in my area, you're still in a declining market with very very few exceptions. However, since you put down 30%, most likely you will still have at least 20% and not be faced with PMI.
Also, the date the divorce action was started should be used as the valuation date for $$ purposes.
Let's say you went into contract in January and closed by April, and the divorce action started in June, then the market value of June should be used to establish your buy-out amount.
Example:
house bought for $400,000, downpayment $120,000
= mortgage of $280,000 and equity of $120,000

value as of June $370,000
= mortgage of $280,000 and equity of $90,000

you both lost equity during the marriage, so instead of owing $60K (half of $120K), you'd owe your spouse only $45K (half of $90K) that is if all gets split 50/50...
Might not be a bad idea for us to talk


Quote:
Originally Posted by sasha75 View Post
I expect the divorce to be final by the end of the year/early 2012 at the latest. And yes, I will have the funds to buy out my spouse, etc.

Can you please send me a DM. Actually I think I'm in your area (I recognize your name from posts I've seen on the LI forum).

Thanks!
Will send you a DM tomorrow - have all the necessary info in my office!
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Old 08-26-2011, 07:45 AM
 
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You cannot assume the mortgage. You will have to refinance in just your name.
With 20%+ equity, 40-45% DTI is not a problem. 45% is basically the new limit.
Your divorce will have to be final before you can close (i.e. signed off of by the judge).

Are you paying off the ex's 15% with cash out of the new mortgage? This could pose a problem as you would then only have 15% equity. Sounds like you could pull out 10% in equity, less any costs, and cover the rest in cash. Maybe negotiate that she gets 10% back in cash instead of the 15%.
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Old 08-26-2011, 07:54 AM
 
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Thanks, Tim. This recent article from the New York Times seems to suggest that assuming the loan in my name alone was a viable, less-known option.

http://www.nytimes.com/2011/04/10/re...g-divorce.html

Maybe only for certain types of loans (FHA, like Elke said earlier)? In any case, thanks for the info. Very helpful. And glad to know my DTI ratio won't be an issue.
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