It can be nice to dream of a fresh start after a divorce. For some, a new home is part of the future that they envision for themselves after making such significant life changes. However, a divorce can result in significant debt and changes to credit scores.
Understand more about some important considerations before purchasing a new home after a divorce.
When Is the Best Time to Buy?
Individuals who have gone through a divorce may need time to get their finances in order before applying for a mortgage loan. As with applying as a couple, individuals applying for a mortgage loan need to be able to demonstrate a low debt-to-income ratio, good to excellent credit, and a steady income history. Those who want to be approved for a loan with a decent interest rate may want to pay down debt or work on any credit issues before application for a mortgage loan.
In addition, those who may have not had full-time employment for some time may want to work on this area. Lenders generally want applicants to be employed on a regular basis for a minimum of two years before applying for a mortgage loan. There truly is not specific timeline as each individual's circumstances may require different actions to remedy a particular concern.
How Is Your Credit?
Credit scores can take a hit during a divorce. Applicants should review their specific credit score and take action to remove inaccurate information and address any delinquencies and late payments. Depending on the situation between ex-spouses, it may be beneficial or detrimental to continue to own joint credit cards or remain on loans together. Those who cannot communicate well with an ex or may worry about their ex running up additional unexpected debt may want to take measures to separate finances. Generally speaking, it is useful to obtain a free credit report for personal review prior to applying for any mortgage loan.
Review Mortgage Products
Aside from conventional mortgage loan products, there are other affordable loan products that can make home ownership possible. Some may want to take out a loan that requires a small down payment. However, review the fine print as the terms and requirements may vary between lenders. Mortgage loan alternatives may include FHA loans, VA loans USDA loans.
Have You Saved Enough to Cover Initial Costs?
It can be expensive to buy a home. Aside from saving as much as 20 percent as a down payment for good terms on a conventional loan, it will be necessary for an individual to cover closing costs. It is important to run the numbers and find out how much can be designated toward such necessary costs and expenditures. Some choose to use proceeds from a recently sold home to meet part or all of the expenses related to paying for a new home.
Should You Own a Home Jointly?
Not everyone who has divorced may want to buy a home on their own. Some choose to have a mortgage on a home that has their name and that of their former spouse on the loan. This may occur when there has been an amicable divorce and one party and their children may want to continue to live in a home to avoid additional disruptions. This reasonable option requires both parties to discuss how loan payments are made and what type of financial distribution will occur when a home is finally sold.