Can I get a mortgage before I'm divorced?

March 26, 2018 10:31 AM

How likely is it that my life circumstances will torpedo my mortgage application? Negatives: Divorce is not final; 2016 taxes were filed late (ie, over the weekend, not accepted yet): 2017 & beyond income is good, but 2016 was terrible. More inside, plus some positive aspects of my situation.

I was pre-approved for a mortgage based only on my income and my personal assets that are not affected by divorce. Once the divorce is over, I'll actually have more assets than I disclosed when applying for the mortgage.

My soon-to-be-ex husband knows I've put an offer on a home, as do my lawyer and his lawyer; all are OK with this and with the understanding that the house will be mine alone. We have a divorce settlement agreement in principle, it's just not drafted in the appropriate legalese and signed yet.

Our divorce could be final before closing on the house, depending on how fast the lawyers move and when a judge signs off on things, but it may not be final til after.

In 2016, when my marriage started to fall apart, so did I. At the time I was a freelancer. My income collapsed as did my record keeping. I only made $19,000 after deductions that year. I didn't file with the IRS until this weekend (as in, the filing will be postmarked today). Also filed my 2017 taxes this weekend. My income was much more healthy last year, and will be even higher this year. As of April 2017, I am no longer self-employed, but instead I have a steady paycheck.

In my favor, I'm planning to put down a 45% down payment. I've had a relationship with the bank issuing my mortgage loan for more than 20 years. I have very good credit. If I negotiate with my ex and am able to get the divorce assets sooner, I could even make a bigger down payment, though that's not my current plan.

I feel as though I'm a risky bet for lenders, but I want this house sooo much.

posted by croutonsupafreak to Work & Money (4 answers total)

On your mortgage application, did you state that you want the property titled as your "sole and separate property" (assuming you are in a community property state)? If you did, and if you didn't list your soon-to-be-ex, and if your soon-to-be-ex will—if necessary for your being in a community property state—come to closing and sign the releases granting you sole ownership, in my layperson's opinion you should be fine. I say "should" because underwriters can be picky people but it sounds like you are in the good position of coming out financially better after the divorce than worse. It's the second possibility that gets people in trouble when applying for and receiving mortgages.

A mortgage company is primarily concerned with two things: your source of funds for paying back the mortgage as agreed and how difficult it will be for them to come after the property if you don't pay back as agreed. If your soon-to-be-ex goes with the flow and signs the appropriate releases, that second bit is ameliorated and the first one you've already handled.

Good luck to you.
posted by fireoyster at 11:12 AM on March 26, 2018 [1 favorite]

(Forgot to note: In all of the mortgages I have dealt with over the years of being a combusting mollusk on this planet, I was only asked about marital status in the context of "will your spouse have half of a claim to this property." I've been the sole breadwinner so, with my spouse's approval, our properties have been titled solely in my name for convenience. Once that box was checked, the underwriters, paperwork creators, and their kin never asked another word about anyone but me.)
posted by fireoyster at 11:15 AM on March 26, 2018

Best answer: A little over a year ago I got a mortgage and closed on my house months before we even filed for divorce, but we did have a signed separation agreement. My taxes were also a little squirrely as far as filing dates. I'd managed to not file 2014 taxes on the day I first approached my mortgage broker about getting a pre-approval; their comment was to get'er done that night, which I did. I also freelance, although I didn't have any income sags in the years they wanted documentation for. I went with a boutique-style local mortgage broker and we were able to work everything out to get the documentation that satisfied them. My ex-husband, OTOH, shopped around for the best rate from random online mortgage outfits and got his first re-fi attempt bonged due to the tax thing about the same time I was getting approved. If your current bank was willing to pre-approve you based on the numbers you've given them, I'd just see if you can have a talk with someone to make sure you can line up the documentation they need to feel confident that the assets and income you claim are legit. And light a fire under your lawyers' asses to get that separation agreement drafted.
posted by drlith at 3:03 PM on March 26, 2018

Response by poster: I should have called the bank before I posted this question. The lender says lots of people buy while getting divorced, and if my divorce is amicable and my ex and are are willing to sign some papers showing that it's my house and my loan, and he has no claim on the house or obligation on my debt, then we should be OK on that front.

I have a bunch of documents to submit for underwriting, so the effect of my 2016 tax situation and low income that year is yet to be determined.

Still not a done deal, but the divorce itself does not appear to be a deal breaker.
posted by croutonsupafreak at 4:10 PM on March 26, 2018