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How does divorce impact getting a mortgage?

Alimony and prenuptial agreements are not on your mind when you are buying a new home. However, these are definitely factors that a mortgage company or bank will consider when you apply for a loan as they are a part of your overall financial picture.

You can take steps to put yourself in a better position to buy a home even if you are in the process of getting divorced. It is important to understand how alimony, prenuptial agreements and other issues may impact your ability to get a mortgage.

Here are the ways that alimony and prenuptial agreements could impact your home buying experience.

Alimony and mortgages

Alimony is a court-ordered payment to an ex-spouse that will impact your ability to buy a home. How this affects your mortgage decision will depend on whether you are the person paying the alimony each month or receiving the extra income.

If you are paying alimony, this is considered a debt and it can reduce your borrowing power. Almost all lenders will include these ongoing payments in your debt to income ratio, which could disqualify you for a mortgage should your debts top 30 to 45 percent of monthly income.

If you are receiving alimony, lenders will want to see detailed documentation of court agreements and proof of past payments. Mortgage lenders will want evidence that payments are being reliably paid before they will consider them as a part of your income in a mortgage decision.

Prenuptial agreements and mortgage decisions

For some couples, prenuptial agreements are considered a part of their estate plan as they specify the division of assets upon divorce or death. However, these agreements also impact mortgage decisions. In many cases, a prenuptial agreement only deals with debts and assets from the past. Therefore, a new mortgage requires that the parties agree on whose name will be on the mortgage and the home's property title.

Because a new property isn't covered by a prenuptial agreement, it's usually a good idea to hold off on buying a new home while a divorce is still pending. There are some instances where any new property purchased will not be considered marital property during your divorce.

How to prepare

When you are looking to purchase a home, whether recently divorced or in the process, it pays to be prepared for a few complications. You'll need to document any alimony payments or prenuptial agreements for the mortgage company, as they could impact the lending decision. The process may take a bit longer, but a proactive approach to your application is recommended.

The divorce process is complicated, especially if you are trying to buy a new home. An attorney can help you understand your rights and legal options.

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