In our last blog, we went over the not so uncommon story of John and Jane, a recently separated couple, who needed to refinance a mortgage on their previously shared home as well as apply for a mortgage on a new home. There are lots of steps in any mortgage application but when you’re going through a split, there are specific factors to consider. In situations like theirs, emotions can often run high, so we’re providing a solutions roadmap geared at helping newly separated individuals to help remove some of the stress and pressure!
- The separation agreement is the lynch pin
A separation agreement allows two spouses to live “separate and apart” but it is not the same as a legal ending to a marriage (i.e divorce). The agreement outlines what’s going to happen surrounding child custody and support, division of property, spousal support, how much or little support comes off the matrimonial home and other important items.
Having a separation agreement in place is a necessary step for pretty much any financial process resulting from the split. As solutions providers, we can still move forward knowing a separation agreement is in the works but nothing will be able to be finalized and move forward until this agreement is in place.
- Figuring out the down payment
When it comes to a dissolved relationship, there are also additional factors surrounding income qualification and down payments that are important to understand. First off, you can use RRSPs, even if they were used as a first-time buyer since it’s the case of a relationship breaking down. In addition to RRSPs, there’s also other savings, investments, GICs, stocks, etc. that can be used for a down payment.
It’s also important to note that support payments like child or spousal support are considered usable and contribute to the qualifying income of the individual receiving the payment(s) and counts as debt (similar to credit card, car, or mortgage payments) for the payee. We’re not always able to use the full amount of the support payment(s) but it always helps to have more qualifying income when scoping potential deals.
- Relying on your partner for income doesn’t help
When a relationship dissolves, and everything has been being shared previously, it makes it more complicated when trying to purchase a home by yourself. Beyond the current “hot market” and simple math of two incomes being more than one, there’s also the issue of personal credit. Personal credit is a sense of financial trustworthiness that is built up through paying bills in full and in a timely fashion.
You need to have your own strong personal credit (e.g. credit card, line of credit, car loan, etc.) and this can be hindered if everything was handled by or shared with a previous partner. In a worst case scenario, poor financial decision making by the previous partner can negatively impact your personal credit and make qualifying for a deal more difficult.
Finally, let’s briefly touch on mortgage refinancing as this is something that often needs to happen if the couple were homeowners. Mortgage refinancing refers to renegotiating an existing mortgage for a new one but is limited to 80% of the value of the home. It can include increasing the principal or paying out the mortgage in full. A relationship breakdown is the only situation where you can refinance for more than 80% of the existing home’s appraised value.
At up to 80% loan-to-value, depending on the lender and the variables involved, they may agree to refinance the home with another mortgage, home equity line of credit, or a loan secured with the home. With a program specifically designed for partner payouts in these situations (technically it’s a purchase), you can actually refinance the mortgage for up to 95% of its value. Above 80% is a situation where we can look at multiple options to create the best solution for you.
Contact the Kyle Miller Mortgage Agent team so we can discuss your situation and help find solutions. If you’re newly separated and single, there are lots of decisions to be made so let us ease the burden by helping you understand your best options!
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