Divorce Issues/Mortgage & Divorce
I am in the process of a divorce. My husband took out $100,000 on a open business line of credit without my knowledge on our home. He would like to give me our home as part of our settlement. We still owe (counting the latest debt ) $295,000. My question is if he pays off the $100,000 can I refinance in my name and remove his name from the deed. My only income is court ordered support which is adequate to make the payments. Or does he need to pay off the entire loan in order for me to own it.
Any advice or creative solution so that I can stay in my home would be appreciated.
Thank you for your question. If I have read your message correctly, the business line of credit is a separate, most likely a second mortgage, loan against the house. Once it is paid off the first mortgage will be the only loan you will need to qualify for.
Allow me to apologize up front. The following may be a little confusing. But, it is important.
Qualifying for refinancing your home loan: Fannie Mae has a set of guidelines each lender who re-sells loans to them must follow...This means your lender will go through the refinance process with you, and then will 'bundle' your loan with others like it to re-sell to Fannie Mae...These days this re-sell process is followed for over 95 percent of lower dollar loans. On top of Fannie Mae's guidelines your lender will add another set of requirements you must meet -- this will include income and credit status. The reason I mention this re-sell process is because you may receive different answers to your 'do I qualify?' question from different lenders.
However, the basics will remain in place.
* The divorce decree must state the amount you will be receiving.
* The length of time you will be receiving it.
* And, you must provide a copy to your lender.
* The sum of your mortgage payment, plus property taxes, plus your homeowners insurance cannot exceed 38-43 percent of your income. The difference in percentage depends on the lender and the mortgage program they suggest for you.
* Your credit score must warrant their trust. Expect this to be a FICO score of about 680.
If your credit and income satisfies the lender, as above, then the home will be refinanced in your name -only-. If the lender is not satisfied with your credit and income, your husband will need to take on that debt until circumstances change. This will mean his paying it off, or paying it down to where you and afford it, or over time the amount decreases to a level where you could afford the payment because so little is owed.
You may need to do a combination of things. For example: He pays off the 100k loan and provides an additional 75k in cash toward the paying down of the home. This would leave you with 125k mortgage payment -- plus property taxes and homeowners insurance, of course.
What I do caution you on is the equity in both the business and the home. For example: If his business is going to be worth, say 800k by the end of this year and the equity in your home is only 50k, and these are the only assets being divided, obviously, you are not getting a good deal. You will want your attorney to ask for a Profit and Loss statement for this year and business tax statements for the past couple of years to assist in determining the value and equity in the business.
Another option is to get a forensic business auditor to go through the value discovery process on the business and ensure you're getting a good deal. Your attorney, hopefully separate from your husband's, should be able to help with this. Your knowing more about what kind of business your husband is in, etc., will help you decide if this is worthwhile doing.
Also, if you are planning on keeping your home for some years and then selling it, be aware of the tax consequences. You're welcome to visit my website HouseInDivorce.com and click on 'capital gains' for a full explanation on this. Again, your attorney can help you with examples and numbers.
Please note: If the mortgage payment stays in his name this debt could haunt him when he attempts to get another loan - as his debt to income ratio will include this mortgage payment. This will include credit cards, a new home, a boat, a car, business loan, etc. So, reasonably, he will want to avoid keeping this debt.
I sincerely hope that helps! If you have any more questions, or would like some clarity on any of the above, please do not hesitate to place a follow-up question.