If you’re among the thousands of Canadians each year who get separated or divorced, then finding and settling in a new home may be high on your priority list as you work through this tough transition.
Here’s what you need to know about qualifying for a mortgage after getting separated or divorced:
- You need documentation. Lenders don’t like messiness, and especially not a spurned spouse demanding your new property. If you’re separating from a spouse, they’ll want to see a duly notarized separation agreement, and if you’re officially divorced, they’ll want to see the divorce deed along with the agreement to see if you are making ongoing support payments. It’s a good idea to have this documentation anyway to protect your new investment. Do not buy real estate until your separation agreement is finalized because your ex and his or her lawyer can complicate the transaction. Once you have your separation agreement or divorce deed, you and your lender will have greater peace of mind that the property is truly yours and won’t get dragged into court as a marital asset.
- You’re still on the hook until you’re off the old mortgage. Sometimes people think that if they have a separation agreement outlining who is responsible for the mortgage payments it would remove their responsibility to repay the mortgage. Unfortunately, lenders don’t see it that way! Even if you’ve moved out of the house, you still have responsibility for paying the mortgage until you’re removed from that mortgage. If you trust your ex to pay the mortgage and he or she doesn’t, it will impact your credit reports.
- Qualifying for a new mortgage can be tricky. Remaining on the old mortgage can impact your ability to get a new mortgage if you don’t have enough income to support the second mortgage. If there are children in the picture, many couples like to keep the family home and maintain some continuity in the kids’ lives. The person remaining in the home could refinance in their name only if they have sufficient income to qualify (spousal and child support counts but many lenders want six months of history and only count 50 per cent of the income), and that would remove the other spouse from the mortgage. Other couples choose to sell the property so that neither person is saddled with the mortgage, but this can incur prepayment penalties depending on the terms of the mortgage. They may also lose money if the market is lower than it was when they originally bought.
- Child support or spousal support counts as a liability or an ongoing monthly expense. If you have to pay child support or spousal support, that can also limit your ability to qualify for a mortgage. Although child support payment are not listed with the credit bureaus, the separate agreement will outline support payments and lenders will include this in their calculations as an expense or liability.
Getting separated or divorced is stressful, but many people are happy to start new in a home that fits their current needs and budget. I have helped obtain financing for many of my clients after getting separated or divorced, and the majority felt that it was a positive step in terms of gaining back their independence and moving on.