Can I qualify even though I just divorced?
To say that a divorce can be disruptive is an understatement. However, it's important to remember that divorce can disrupt your financial situation as well, but with a little preparation, you can qualify for a mortgage even if you are recently divorced.
The most important consideration is your credit. You generally need two or three credit accounts with at least 12 months of payment history to qualify for a mortgage. If you haven't established credit accounts of your own, now is the time to do so. Joint accounts with your ex-spouse are acceptable, but you may not want to keep those accounts open long-term. If your auto loan isn't in your name, try to refinance it. If you're making the payments, you want your credit score to receive the benefit. If you don't have a credit card in your name, it may make sense to request one, preferably a bank card (i.e., Visa, Mastercard, Discover). If you don't like using credit cards, request a low credit limit. Use the card to purchase gas once a month and pay it off.
If you have a joint account with your ex-spouse, consider carefully whether you want to keep it open. Because it's a joint account, the creditor will report any activity from your spouse, or inactivity in the case of missed payments, on your credit report. While your divorce decree may stipulate which spouse has to pay the debt, that won't save your credit score.
For a similar reason, it probably makes sense to remove your ex-spouse as an authorized signer on any of your accounts. If it's your account, you're liable for any charges. You also want to ask your ex to remove you as an authorized signer on any of his or her accounts. Otherwise, the accounts still will show on your credit report and could affect your score.
Until you separate your financial accounts, it's wise counsel to make sure all joint account payments are made on time even if you eventually won't be liable for the account. Make a list of all of your joint accounts. If you don't pay the accounts, check with the creditors each month to see that they have received payment. For joint credit card accounts, the easiest course of action may be to make the minimum monthly payment each month. Even if you cannot recover the money during the divorce proceedings, it's a better outcome than losing your good credit history due to non-payment.
One special debt you need to consider is your mortgage. If both you and your ex-spouse are on the mortgage, you really should refinance it. The divorce decree probably specifies which spouse is responsible for the payments. However, this is joint credit, and the creditor will continue to hold both of you liable. That means that if your ex is responsible and makes late payments, they will damage your credit score. If your ex loses the house in foreclosure, the foreclosure will appear on your credit report. This will seriously damage your ability to qualify for any credit, including a mortgage.
Assuming your home has equity, it's possible you'll need to split that with your ex-spouse. When one spouse buys out the other, we use an Owelty Deed to partition the property, and often the parties need to use the property's equity for the buy out - a cash-out refinance. The Texas Constitution limits the loan amount of a cash-out refinance to 80% of the property's value except for owelty situations. In this case, the loan amount can be 90% of the value.
Now that you've separated your debts, let's consider income. Of course, you can only use your income to qualify for a mortgage. While mortgage lenders prefer to see a two-year job history, most will waive that guideline in a divorce situation. To document your income, you'll need at least one pay stub covering an entire pay period or a written offer of employment.
You can use child support, alimony, or spousal support as qualifying income once you've received it consistently for three to 12 months, depending on the loan program. See "Can I qualify with child support or alimony income?" for more details.
If your income still isn't sufficient to qualify, you may want to consider asking someone to co-sign the mortgage. The co-signer often is a parent, but anyone can co-sign who has acceptable credit. You get the benefit of the co-signer's income for qualifying, but we also have to consider his or her debts. The co-signer is jointly liable for the debt. Thus, if you fail to make payments, the lender will expect your co-signer to pay, and you will damage both of your credit histories.
As a final thought, keep in mind that Texas is a community property state. If you wish to buy a home before your divorce is final, we will require that your to-be-ex-spouse have joint title to the home at closing.