Arizona Divorce | Debt Follows the Person(s)
Let us discuss debts and how debts ‘follow the person.’
When you and your soon-to-be ex-spouse signed the mortgage loan documents for your house, you both committed equally to paying off the mortgage loan.
Now you are planning to divorce but you will both continue to be responsible for the home loan until the existing home loan is paid off either through a refinance of the home by one of the spouses, or by selling the home.
How Can Mortgage Debt Impact Your Future?
Unless you make a lot of money, having your name as a responsible person on any mortgage loan could make it impossible for you to purchase a new house for yourself after the divorce.
This is because at least half of the mortgage payment from the former home will still be part of your debt-to-income ratio. The debt-to-income ratio is part of what helps you qualify for a new mortgage loan.
If you are responsible for at least half of the mortgage of the former home, and if you have car payments, credit card payments and other loan payments you will most likely not qualify for a new home loan. This is because your debt-to-income ratios will be outside of the allowable norms.
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 (because you are still on the mortgage) 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.