Credit and Divorce

September 1, 2005 - Weston, Florida

 

I was driving around South Florida yesterday between closings in Ft. Lauderdale, Boca Raton and Plantation, and had time to reflect on a conversation I had with a Realtor at the closing table about certain credit issues he's having.  It got me thinking about a client of mine, a young lady in the process of getting divorced.

 

Nora was a stay at home mom for almost 8 years before marital problems forced a split from her husband.  She hadn't worked since right before the birth of her first child, almost 9 years ago.  During that time, her husband handled all of the family finances.  Now, she was getting divorced and applying for a mortgage to pull cash out of her house as part of the settlement.

 

Despite being a smart, level-headed person, Nora was in a dicey situation because she had no control over her finances.  The crux of her problem was that she had never gotten herself involved in the family finances.  

 

This presented problems relating to her mortgage application.  She had a good credit score, but very little credit history -the "depth" of her credit was not impressive.  Since the current mortgage on her home was in her husband's name only, it would be difficult for an underwriter to evaluate how likely she would be to repay a new, larger, mortgage debt. 

 

Think about it - would you lend money to someone without knowing much about how they repaid debts in the past, while knowing that they haven't worked for almost 9 years?  How would you expect to be repaid?

 

The key is to not allow yourself to get into this situation.  A recent article in the New York Times listed the following steps that should be taken by every spouse to prevent this:

 

• Get Involved - this means knowing where all statements, accounts, etc. are.  Force yourself to read and understand them.  Know where the money is:  how much comes in, how much goes out and where it comes from and goes.
• Establish Credit - have some credit in your name only
• Title Your Assets Properly - Make sure your name is on all real property.  If you're luck enough to have received an inheritance or gift from a family member, keep copies of all checks.

(By the way, the article recommended that, if separation is imminent, copy your last three years' tax returns and bank/investment statements, take inventory of your valuables and copy important records and correspondence from your home computer.)

 

I bet you're wondering what happened!  At the end of the day, Nora qualified for financing with us because we have a special, "niche" investor who purchases mortgages we write for people with good credit scores but no verifiable source of income  - No Doc borrowers.  Although she got a great rate, she would have qualified for perhaps 1/4 of one percent lower had she taken the steps listed above.

 

(For more information on credit issues, divorce and other Mortgage-related topics, check out past Blogs and our website, www.BlackacreMortgage.com).