Can I refinance before divorce? – Susan from Tallahassee, FL
Like many of the aspects of divorce, it depends if you should refinance before divorce.
There are a lot of factors that go into whether you can get qualified for a loan and whether the timing is right for you. Lenders look at your marital status in very specific terms, i.e. marries, separated (legally) or divorced. This is not a “check all that apply” answer. So, if at the time of application, you are still married that is what the lender considers you. You will still, of course, need to qualify for the loan on your own merits from an income, credit and asset perspective. Therefore, you cannot, for example, combine your income with anyone else who is not on the home loan. Additionally, any combined debt, such as joint credit cards, will be factored into your loan. In short, however, there is no reason that you cannot refinance your home before divorce. Here are some things that you should remember to do before refinancing your home:
Resolve Any Joint Credit
Resolve any joint credit prior to applying. This will not only help with your debt service ratio, but it will also potentially help your credit score.
Review the Benefits of Refinancing Before Divorce
If some equity is due to the non-refinancing spouse, make sure that you look at the benefits of refinancing before and after the divorce. There are some circumstances when you can get better terms and have a better chance at approval when there is a divorce decree, such as an equity buyout. I always recommend speaking with a Divorce Mortgage Pro before making any decisions so that you have the full picture.
Check Your Overall Tax Situation
Ensure that there are no adverse tax implications. Changes in ownership and other moves can cost you. Candidly, you should be consulting a Divorce Accounting Pro about how the divorce will impact your overall tax situation, so this should be part of the discussion.
Keep It the Same After You Apply for Refinancing
Once you apply, don’t change anything. I tell all of my clients, divorcing or not, that the application is a snapshot, so moving money, incurring new debt, et al can all potentially negatively impact a loan. This also applies to your marital status. If you apply married and that changes during the loan, you need to alert the lender.
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