How To Buy A House After A Divorce

Apr 10, 2024

7-minute read

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A couple signing divorce papers, suggesting a legal process related to property or asset division.

If you’ve been through a divorce, a fresh start comes with new matters to consider when buying a house or refinancing your mortgage. Your former partner may buy out your portion of your current home, meaning you'll be looking for your own home, or you may stay in your current home, needing to refinance.

Either way, you're looking at a new mortgage. Let’s discuss reentering the mortgage market after a divorce.

What To Consider When Buying A House After A Divorce

When divorcing, a lot of change is happening. You may be separating from your spouse's name. The split could be amicable, but it also could be complicated. Depending on your divorce settlement, you may be looking for a new home.

Fortunately, you're not alone. Divorces happen every day. The mortgage and real estate industries know this. Work with a REALTOR® or a real estate agent who understands your experience and your needs when it comes to a new home.

Income

When it comes to your source of income, if you were a two-income family, losing your spouse’s income means you’ll qualify for a lower loan amount, unless you’re buying with a cosigner or a new significant other.

There are ways to offset this. For example, if you’re receiving child support and/or alimony (and you can document that these payments will continue for some time), these can be factored into your earnings for the purposes of qualification.

Conversely, if you’re now paying spousal or child support but it will be ending soon (and you can document that), you can have the payments excluded from your debt-to-income ratio (DTI). This may qualify you to borrow more. Your DTI measures what percentage of your monthly income goes to paying off debts like mortgage loans, cars and credit cards.

Under certain loan options, your lender can choose whether to count your child support or alimony payments, either as a debt payment or as a reduction of income. If they’re counted as a reduction of income, this could help you keep your DTI down.

Once you’ve calculated your income, you can then determine whether buying a house is right for you. If it is, to have the best chance of qualifying for a mortgage, keep your debt payments to less than 43% of your before-tax income.

Assets

Getting a divorce can be expensive. Every situation is different, but it’s not uncommon for cash you have on hand to dwindle, especially if you have to hire a divorce attorney. With that in mind, be aware of some of the assets you need on hand to get a mortgage.

Most loan programs require that you have a certain amount of money in reserves. The exact amount of cash reserves you need depends on the loan program, but a good guideline is two months’ worth of principal, interest, taxes and insurance costs. 

So, in addition to having the down payment, you’ll need cash on hand and enough funds to set up an escrow account. Most loans require you to set up an escrow account rather than paying taxes and insurance separately.

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