Buying a New Home After a Divorce in New Jersey: Credit Income and Timing

You can buy a home on your own after a divorce once a lender approves you on your own credit and income. Two things can slow that down, an old joint mortgage that's still on your credit and support income a lender can't count yet, so start with your credit reports and a mortgage professional while the settlement is still being written. The timing of the sale, the agreement and the purchase all have to line up.

I'm Dennis Mark Interdonato, a REALTOR® and Master CDRE® with The Dennis Mark Group at Keller Williams Realty Ocean Living. Selling the marital home in a divorce is half the move. The other half is where you go next. I'm not a lender, so here's what the Consumer Financial Protection Bureau (CFPB) and the federal rules say, and the questions to bring to your lender and your attorney. This is general information, not legal, tax or lending advice.

Step 1: What's on your credit right now?

Pull all three reports before you talk to anyone about a loan. The CFPB says you can get a free copy from each of the three major consumer reporting companies, Equifax, Experian and TransUnion, through AnnualCreditReport.com, and you may be able to view free reports more often online. Look for:

• Joint accounts that are still open in both names
• Cards where one of you is an authorized user on the other's account
• The current mortgage and any home equity line
• Late payments since the separation

The CFPB is direct about the part that surprises people. Divorce changes the relationship between spouses, but it doesn't automatically change their relationship with creditors. A decree can assign a debt to one spouse, and a creditor can still collect from anyone whose name is on the loan. Taking your name off a home's title doesn't take your name off the mortgage.

Step 2: What happens to the old mortgage?

If the marital home is sold, the loan is paid off at closing. If your spouse is keeping the house, the CFPB says you're generally still responsible for it unless the lender releases you or your former spouse refinances and removes your name. That matters because lenders look at your debt-to-income ratio, which the CFPB defines as all your monthly debt payments divided by your gross monthly income. In the CFPB's own example, $2,000 in monthly debt payments on $6,000 of gross monthly income is a 33 percent ratio. Ask your lender how they'll treat a mortgage you're still named on but no longer paying. If your spouse is keeping the house through a refinance, the date that refinance closes can decide when you qualify, because until it does, the old payment may still count against you. Put that date in the plan.

If your credit took a hit from an account your former spouse handled, ask the lender to look at the full picture. Under Regulation B, the federal Equal Credit Opportunity Act rule, a lender that considers credit history must, at your request, consider information you present showing that the history doesn't accurately reflect your creditworthiness.

Step 3: What income can count?

If you'll receive alimony, child support or separate maintenance, you choose whether to use it. The CFPB says a lender may ask whether your income comes from those payments, but must tell you that you don't have to reveal it if you don't want it considered.

If you do rely on it, Regulation B says the lender must consider it as income to the extent the payments are likely to be consistently made. The official interpretation lists what a lender may look at: whether the payments are received under a written agreement or court decree, how long they've been received, whether they arrive regularly, whether there are court or other procedures to compel payment, and the payer's creditworthiness. That's one more reason the timing of your signed agreement matters. Lenders work from documents: terms you expect to agree to aren't the same as terms in a signed agreement.

Step 4: Can you buy before the divorce is final?

Possibly, and this is where your attorney and your lender should both weigh in. The CFPB says that if you apply for credit in your own name, a lender can't deny you because of your marital status, and if you're creditworthy, a lender generally can't require your spouse to co-sign. It also says a lender may require your spouse's signature on documents needed to create a valid lien or pass clear title. Talk to your attorney before you sign a purchase contract while you're still married.

Step 5: How should the sale and the purchase line up?

If your down payment is coming from the sale of the marital home, the purchase has to wait for that money, and if the proceeds are being held until the agreement is final, so is your down payment. Map it out:

1. Pull your credit reports and talk to a lender about pre-approval.
2. Get a current home value on the marital home and a net-proceeds estimate. Here's what comes out of the proceeds at a divorce closing.
3. Ask your attorney when your share of the proceeds can be released to you.
4. Start touring once you know your number.
5. Once you're under contract, expect a three-business-day attorney review period on a contract prepared by a real estate licensee (N.J.A.C. 11:5-6.2), and a Closing Disclosure from your lender at least three business days before you close (CFPB).

Where should you start looking?

Start with what your budget buys. Across Monmouth and Ocean County, what a budget buys depends on the town, so match the town to the number before you fall for a house. The monthly market report shows what's selling.

One rule I follow as a Master CDRE®: if I'm selling your marital home, I don't represent either of you in another purchase or sale while it's listed. That's part of the CDRE® Code of Ethics, and it keeps the sale neutral. Once the marital home has closed, I can help either of you buy your next home, and the buying page walks through how I work with buyers.

What are the most common mistakes?

• Assuming the decree took your name off the old loan. Only a payoff, a refinance or a release does that.
• Counting support income before the agreement is signed. A lender looks at whether the payments are likely to continue.
• Overestimating what you can borrow while you're still on the old loan. Until it's paid off or you're released, it can count in your ratio.
• Taking on new debt before talking to a lender. It changes the ratio the lender sees.
• Shopping before you know your number. Pre-approval first, then tours.

Frequently Asked Questions

Does alimony or child support count as income for a mortgage?

It can, if you choose to rely on it. Under Regulation B, a lender must consider it to the extent the payments are likely to be consistently made, and may look at things like a written agreement or court decree and how long you've received the payments.

Can my former spouse's late payments on our old mortgage affect me?

If your name is still on the loan, the CFPB says the creditor can still collect from you. You can ask a lender to consider information showing your credit history doesn't accurately reflect your creditworthiness.

Can I buy a house before my divorce is final?

You may be able to apply in your own name, and the CFPB says a lender can't deny you because of your marital status. A lender may still need your spouse's signature on certain documents, so talk to your attorney and lender first.

Can the agent selling our marital home help me buy my next one?

If that agent is a CDRE®, not while the marital home is listed. The CDRE® Code of Ethics says a CDRE® doesn't represent either spouse in another transaction during the life of the divorce listing. Once the marital home has closed, I can help either of you buy.

How long after a divorce can I buy a house?

None of the federal rules cited here set a waiting period. It depends on your credit, your income and your lender's requirements, so start that conversation early.

This is general information, not legal, tax or lending advice. Talk to a licensed mortgage professional and your attorney about your own situation.

About the author

Dennis Mark Interdonato is a REALTOR® and Master CDRE® who leads The Dennis Mark Group at Keller Williams Realty Ocean Living in Point Pleasant, NJ, helping buyers and sellers throughout New Jersey make their next move, with Monmouth and Ocean County as home base. Read more about Dennis Mark.

Keep reading

• Read the divorce home sale guide
• Understanding the credit bureaus
• The documents you need for mortgage approval
• Have a question this didn't answer? Send it to Dennis Mark.