Buying A House During Your Divorce: Risks To Consider And Steps You Should Take

People get divorced for many reasons. Whatever the “why” is, it doesn’t make the process any easier, especially when it comes to finances. In this post, we’ll focus on the process of buying a house during a divorce.

Can You Buy A House While Going Through A Divorce?

Yes. You can buy a home while getting a divorce. Mortgage lenders aren’t going to turn down your business on the basis of your marital status. With that said, the legal implications involved with the divorce process can make buying a home at the same time a challenging affair.

Risks Of Buying A House Before Your Divorce Is Finalized

There are several risks to taking on a new mortgage while in the middle of your divorce process. Here are the big ones:

• Your spouse may be able to claim partial ownership. Certain states are community property states. In these states, most property you purchase during marriage is marital property and your spouse has half the rights to it. There are limited exceptions for things like inheritance and gifts. This isn’t the case in every state, but it’s something to think about. It’s important to note that any property acquired before the marriage or after separation (or after divorce in some states) is separate property that your spouse doesn’t have the rights to unless you put them on the title. Other states recognize homestead rights. These are rights that your spouse may have based on their property being their primary residence. Although this won’t be the case with the new home you’re buying, it can affect the proceeds you receive if the property you live in together needs to be sold.
• Using marital assets in your home purchase could give your spouse property rights. Marital assets are funds from joint accounts and also any funds that you both benefit from the use of during the marriage. The problem is that if you use these funds to buy a new home, your spouse could have a legal claim to the property because you used funds that were partially theirs.
• There is a chance you won’t be able to afford your new home after the divorce process. Divorce is expensive. For starters, think about the attorney fees and other expenses associated with the filing and court costs. Depending on your financial situation, in comparison to your spouse, you may also have ongoing expenses after the divorce is finalized, including spousal alimony and child support.
• Your home purchase has the potential to complicate your divorce proceedings. A home represents a large financial asset. If you buy one before your divorce is finalized, that could impact how the court splits assets and debts among the two of you. For example, other assets given to you could be reduced based on a perception that you have more resources.

How To Buy A House During Your Divorce

It’s always going to be easier to buy a home after your divorce for all the considerations listed above. However, everyone’s circumstances are different. If you’re in a situation where you still want or need a new home prior to your divorce being finalized, taking the following steps can reduce the risk of your spouse having a claim to partial ownership of your new home.

Finalize Your Separation Agreement

If you’re in the process of getting a divorce while also applying for a mortgage, you want to make sure you and your spouse put the finishing touches on a legal separation agreement or property settlement agreement. Your lender will need to know what you’re going to be responsible for once the divorce is finalized.

The separation agreement needs to be official and signed by a judge. Having that upfront will help you and your lender figure out the best course of action moving forward.

Seek Legal Advice From Your Divorce Attorney

Before moving forward with your purchase, inform your divorce lawyer that you’re thinking about doing so. They’ll be able to give you legal advice around the law in your state, and tell you about rights or lack thereof that your spouse might have if you purchase before the divorce is final. They can also give you guidance on ways to keep your new property from affecting the divorce proceedings.

Confirm Whether You’re Located In A Community Property State

Several states are community property states in which property purchased during the marriage is held jointly on the basis of state law. Talk to your attorney. Spouses may be able to waive rights in certain states. The following are community property states:

• Arizona
• California
• Idaho
• Louisiana
• Nevada
• New Mexico
• Texas
• Washington State
• Wisconsin

There are, of course, the issues surrounding disposal of marital properties in these states as there would be in any instance of joint ownership. However, you should also know that in these states, your spouse’s debt may be included in your debt-to-income ratio (DTI) in some cases.

Specifically, loans backed by the federal government such as FHA loans, VA loans and USDA loans take into account the debts of a spouse, regardless of whether that person is on the mortgage. This guidance applies unless you can get a legal document that states you are no longer responsible for the debt on your spouse’s credit.

It should be noted that you don’t have to worry about spousal guidelines in community property states if you’re getting a conventional loan through Fannie Mae or Freddie Mac.

Get Permission If Needed

People generally don’t want to take on two mortgage payments at once if it can be avoided, but this may be especially important in cases where you’re separated. You’re already spending enough money on the divorce.

With that in mind, you’ll likely want to sell your marital property prior to purchasing your future home. However, you’ll need to agree on a sale price and potentially get a court to sign off on the sale as part of your divorce proceedings. As an alternative, one spouse or the other can do a quitclaim deed to get the property in their own name. In exchange, the spouse is paid a sum dictated in the separation agreement or divorce decree for their stake in the property.

If you do choose to sell together, you may want to find a real estate agent with experience in divorce sales. It won’t hurt to have someone who has experience in dealing with potential animosity. If you’re looking for someone, work with one of our Verified Partner Agents!

Rebuild Your Credit And Bank Account

When you’re married, often times, everything goes in a joint bank account for your use as a couple. When you get a divorce, you’ll need to separate your assets. This is probably somewhat straightforward because what you both get will be dependent upon the court order.

The bigger challenge is your credit. Many people open credit card accounts once they’re married. The only problem with that is that if those are your only accounts, your credit is tied together. When you go to get a divorce, you have no solo credit history of your own. It’ll be necessary to rebuild your credit. This is one of the primary obstacles to getting a home while in process or right after a divorce.

If you’re concerned about a lack of individual credit history, the biggest thing you can do is go out and get a credit card or even small personal loan in your name and go from there. You’ll build your credit up over time.

Calculate How Much You Can Afford

Anytime you buy a house, you’ll want to know exactly how much you can afford. However, in a situation of divorce, it doesn’t hurt to do this calculation twice because your budget is going to change.

You probably already figured out you wouldn’t count your spouse’s income, but there’s still a difference between what you can afford during the divorce and what you can afford after. As an example, during the divorce, in addition to paying all the bills associated with daily living, you’ll be paying attorney fees. These go away once the divorce is finalized.

After the divorce, your budget might change again. You still have your income and all the bills from before, you could also be paying or receiving alimony or child support, depending on the specifics of your situation. It’s important to have an idea of both budgets as the mortgage payments you can afford now may not be the same as what you’re looking at long-term.

Start Searching For A New Location

If you’re going from a two-income household down to a single income, that could change where you look for your new home. The fact that your budget is going to be different is one of the first things you’ll need to consider when looking for the appropriate real estate market in which to purchase housing.

Beyond that, what you want in a neighborhood may depend on your individual circumstances. The crime rate is pretty important for many people, but you need to examine your own preferences.

If you’re young and don’t have kids, proximity to nightlife and restaurants may be important, in addition to work commute. Maybe it’s the distance to public transport. If you have children, the school system may be a primary concern.

Of course, this is in addition to your list of everything you need or would like to see in your house. You want to find an area that checks most of your boxes for the actual living space as well.

Put All Documentation In Your Name

It’s very important to put all documentation leading up to and associated with the purchase of your home in your name alone. This includes your real estate agent or REALTOR^® contract, purchase offers, your mortgage and the deed itself. This helps make sure that your spouse has no rights to the new home once your separation agreement or divorce decree is in place.

One thing that people sometimes make the mistake of doing is putting a mortgage in a friend’s or family member’s name while using marital assets to let the friend apply on their behalf. DON’T do this. Not only would you be in a pickle with the court if your spouse found out, but it also opens you up to potential charges of mortgage fraud. It’s just best to avoid this.

Use Separate Funds To Cover All Costs

Finally, you want to make sure you use your own separate funds rather than anything in a joint marital account to pay for closing costs. Use of funds in joint accounts could give your spouse rights to your new property. Keeping funds separate helps avoid legal entanglements.

The Bottom Line

It’s possible to buy a home while going through a divorce. However, for a variety of legal and financial reasons, it’s often easier to just wait until after the divorce is final. That said, if you want or need to buy a house while still going through the divorce process, following steps like finalizing your separation agreement, getting legal advice and using separate funds can make it easier to know the home is your own.

If you’re considering buying a home, check out our Home Affordability Calculator. If you’re ready to move forward, you can apply online with our friends at Rocket Mortgage^® or give them a call at (833) 326-6020.