Arizona Divorce | Debt Follows the Person(s)
First, let’s discuss debts and how debts follow the person.
When you and your soon-to-be ex-spouse applied for, were approved for, and then signed the mortgage loan documents for your house, you both committed equally to paying off the mortgage loan. It was probably a very happy day.
Now, you are planning to divorce, but you need to remember that you both will continue to be responsible for the original home loan until such time that the existing home loan is paid off, either through a refinance of the home or by selling the home.
Why is this? It’s because the house cannot repay the debt for the home loan, only the persons who signed the loan papers can repay the debt, so the debt of the mortgage follows the person.
Arizona Divorce | How Can Mortgage Debt Impact Your Future?
Unless you make a lot of money, having your name on the existing mortgage could make it impossible for you to purchase a new house for yourself after the divorce.
Why is this? It’s because half of the mortgage payment from the former home will still be part of your debt-to-income ratio that you need to qualify for a new home loan.
If you are responsible for half of the mortgage for the former home, and have car payments, credit card payments and other loan payments you will most likely not qualify for a new home loan because your debt to income ratio’s are out of line.
Most people cannot afford to qualify for two home mortgages with only a single income.
Protecting Your Future
When you are equally responsible for the mortgage on your former home not only do you need to be concerned about your personal debt load, but you have to also be concerned about the debt load of your ex-spouse.
If your ex-spouse misses a house payment on your former home your credit score will be as equally impacted in a negative way as theirs.
In fact, the largest impact to your credit score always comes from the first missed payment.
Having a low credit score impacts employment opportunities, credit card offers and the ability to buy a home in the future.
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What I Do:
1. I help people who own a home together, and plan to separate and/or divorce, avoid making very expensive and long-lasting mistakes with their co-owned home.
2. Although my information can help anyone who plans to divorce, it is best suited for those who are not contesting the divorce (too much) and are as amicable as possible.
How Do I Do This?
1. I'll consult with my clients and compassionately help them completely understand all of their options with the home.
2. I'll explain the option of one person keeping the home and refinancing the home, so the former spouse is no longer on the mortgage loan.
3. I'll explain the option of selling the home and splitting the equity, and then each person having the option to buy a new home on their own.
4. I'll explain why an appraisal-minus-the-mortgage does not equal true equity, and why a home inspection (sometimes called house due diligence) is very important at this time.
5. I'll explain to my clients how their decisions with respect to the home will impact their quality of life for many years to come, positively or negatively.
6. I'll explain how the information I can provide will help my clients make better decisions for their future.
7. I'll explain how my clients can avoid making expensive and long-lasting mistakes.
8. I'll introduce my clients to other professionals, such as mortgage professionals who can better explain the refinancing and new purchase options.
9. I'll explain my discounted commission rates that I offer my clients if they choose to sell the house and choose me as their REALTOR®.