by John D. Zoller, JD, CDFA

Mortgage Lending – We don’t know what we don’t know. Talk with people who do.

One of you will face having to refinance your home or have to seek new home financing because of your separation or divorce.  Many people labor under some misconceptions about the mortgage qualification or underwriting criteria. Here are some pieces of information that may vary from your assumptions about mortgages:

  • Rates and Rate Locks: There is a lot of current market volatility which pre-dated the Covid-19 Pandemic. That uncertainty led to historically low rates (3% on 30 yr. fixed rate mortgages are possible). In addition, the old assumption that a rate lock is good only for 30 days is not accurate. Some lenders offered 60-day rate locks.
  • “Seasoning” is the term used to analyze how long someone’s source of income, like child or spousal support, must be in place to be counted toward income for mortgage loans. Many lawyers have been operating on the assumption that a potential borrower would need to show a year of steady child support or spousal support payments for those sources of income to be ‘seasoned’ enough to qualify for underwriting purposes. That is not the case! An FHA borrow will only need to show 3 months of income from child or spousal support. A conventional borrower may only need to show 6 months.
  • Refinancing is not necessarily essential for the departing spouse to qualify for a new mortgage on a post marital residence. This is a common scenario. We’ve assumed for a very long time that the remaining Partner would have to refinance to get the departing Partner off of the mortgage on the marital residence. Not necessarily!  Some lenders will disregard the mortgage on the prior marital home for purposes of the departing Partner’s new home loan if the time and date stamped decree mandates that the Partner in the former marital home must pay and hold the other Partner absolutely harmless on the marital home mortgage.
  • PMI is expensive. Lenders require Purchase Money Insurance when the borrower’s down payment is less than 20 -22% of the purchase price (loan to value ratio). PMI is also more expensive for borrowers with poor or low credit ratings.  The borrower doesn’t get anything for this payment which adds from $50 to $250 per month to a payment. The borrower is simply buying insurance for the lender to protect the lender in the event of non-payment by the borrower. The cost of PMI goes down the higher the borrower’s credit score. The higher the down payment, the lower the PMI as well.

John Zoller and Mary Biacsi are Attorneys in the Northeast Ohio region who are Board Certified as a Specialists in Family Relations law by the Ohio State Bar Association. John Zoller is also a Certified Divorce Financial Analyst (CDFA®). John and Mary  can be reached at john@zblaw.net or mary@zblaw.net or by calling 216-241-2200.

 

This article was made possible by the generous contributions of Andrew G. Morean. Andy is VP of Operations at Brooker Mortgage Corp. Andy has decades of experience in the mortgage lending industry and works with 12 different lenders to fit his borrowers with the best lender for their circumstances. Andy also has vast experience working with families in transition. He can be reached at andy@brookermortgage.com or by calling 440-334-5269.

Mortgage Lending – We don’t know what we don’t know. Talk with people who do.

One of you will face having to refinance your home or have to seek new home financing because of your separation or divorce.  Many people labor under some misconceptions about the mortgage qualification or underwriting criteria. Here are some pieces of information that may vary from your assumptions about mortgages:

  • Rates and Rate Locks: There is a lot of current market volatility which pre-dated the Covid-19 Pandemic. That uncertainty led to historically low rates (3% on 30 yr. fixed rate mortgages are possible). In addition, the old assumption that a rate lock is good only for 30 days is not accurate. Some lenders offered 60-day rate locks.
  • “Seasoning” is the term used to analyze how long someone’s source of income, like child or spousal support, must be in place to be counted toward income for mortgage loans. Many lawyers have been operating on the assumption that a potential borrower would need to show a year of steady child support or spousal support payments for those sources of income to be ‘seasoned’ enough to qualify for underwriting purposes. That is not the case! An FHA borrow will only need to show 3 months of income from child or spousal support. A conventional borrower may only need to show 6 months.
  • Refinancing is not necessarily essential for the departing spouse to qualify for a new mortgage on a post marital residence. This is a common scenario. We’ve assumed for a very long time that the remaining Partner would have to refinance to get the departing Partner off of the mortgage on the marital residence. Not necessarily!  Some lenders will disregard the mortgage on the prior marital home for purposes of the departing Partner’s new home loan if the time and date stamped decree mandates that the Partner in the former marital home must pay and hold the other Partner absolutely harmless on the marital home mortgage.
  • PMI is expensive. Lenders require Purchase Money Insurance when the borrower’s down payment is less than 20 -22% of the purchase price (loan to value ratio). PMI is also more expensive for borrowers with poor or low credit ratings.  The borrower doesn’t get anything for this payment which adds from $50 to $250 per month to a payment. The borrower is simply buying insurance for the lender to protect the lender in the event of non-payment by the borrower. The cost of PMI goes down the higher the borrower’s credit score. The higher the down payment, the lower the PMI as well.

John Zoller and Mary Biacsi are Attorneys in the Northeast Ohio region who are Board Certified as a Specialists in Family Relations law by the Ohio State Bar Association. John Zoller is also a Certified Divorce Financial Analyst (CDFA®). John and Mary  can be reached at john@zblaw.net or mary@zblaw.net or by calling 216-241-2200.

 

This article was made possible by the generous contributions of Andrew G. Morean. Andy is VP of Operations at Brooker Mortgage Corp. Andy has decades of experience in the mortgage lending industry and works with 12 different lenders to fit his borrowers with the best lender for their circumstances. Andy also has vast experience working with families in transition. He can be reached at andy@brookermortgage.com or by calling 440-334-5269.

By John D. Zoller, JD, CDFA