A Guide to the Smart Divorce: Ensuring Your Finances Are Not Ruined In the Process

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Divorce is probably one of the most difficult experiences to endure – right up there with death and taxes.  But it doesn’t have to be that way.  In fact, many couples that decide to call it quits make the conscious decision to do it smartly, resulting in better financial health all around.

At a time when everyone involved, especially the couple, is going through the extremely painful experience of splitting up an entire life as they know it – the last thing that may be on their minds is to smartly manage the financial aspect of their lives.  But without proper preparation the consequences can be dire, having lasting negative impact on the parties and of course their children.

You Can Never Be Too Prepared

As emotionally draining as divorce is for most people going through it, it is critical to remain as functional as possible and to make decisions with a clear mind.  There are hundreds of areas that need attention and often they are overlooked in the painful whirlwind of divorce proceedings, post-divorce emotional downfalls and the obvious re-establishment process.

Couples typically have their eyes on the key aspects of divorce settlement; the house, the car(s), pets, custody of any children and major assets.  But when you delve in deeper into each, there are myriad angles through which things must be considered.

Going Through Each Item, One By One

Follow the checklists linked below to help guide you through each item needing to be done.  There are lists that guide you as to the steps to take prior to initiating a divorce.  Some of the things on this include listing all current debt, identifying the contents in safety deposit boxes or creating your own savings account.

The checklist of items to take care of when initiating a divorce includes things like deciding which parent will take the child tax exemptions and revoking any power of attorney documents that authorize your spouse to legally act on your behalf.

After the divorce is final, it is important to do things like change insurance beneficiary information if applicable, and change your name on all accounts.  There are other vital things to take care of, also mentioned here.

We’ve provided a comprehensive list of documents that you need to prepare in connection with the divorce or of things that are affected by your divorce. The obvious ones are birth and marriage certificates plus not-so-common documents are included as well.

Once you have successfully obtained your divorce there will be some other areas where you will need to report your name change.  Some of them can involve long processes, such as passports or a will on file with your attorney.

The checklists are linked here.

How You Handle It Now Will Affect Your Finances Later

Make sure to cancel any joint credit accounts and charge cards, remove one party from applicable debts/liabilities unless they are legally dissolved and equally split up plus also sell the house or get any refinancing done prior to divorce.  This will ensure a smoother transition in the end when it is often difficult to communicate with your former spouse after divorce proceedings are complete.

All too often couples going through the difficult time of divorce fail to realize the importance of being financially savvy and making decisions that help everyone overall.  Any oversights prior, during and after the process only lead to regretful situations that cannot be rectified after the fact.  In my experience over the years, I have often dealt with people who neglected to attend to important financial obligations during the divorce.  An example of this is failing to separate a car loan.  The result can be very damaging if there is one responsible party suffering the irresponsible person’s management of his/her payments.

Another very interesting and little known fact about divorce when it comes to property ownership – is that unless both parties agree, a refinance cannot take place on a home. Because the child support order is a lien on the property, you need the ex-spouse to sign the subordination. As with everything else mentioned here and on the corresponding checklists – preparedness can and does help you avoid some of the financial pitfalls of divorce.  You just have to be savvy enough to know what you need to do and do it before it’s too late.

Last but not least – ALWAYS CONSULT WITH AN ATTORNEY!

Read the full eight page document here.

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11 Reasons Why A Mortgage Application Might Be Rejected

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Credit Scores

With the heavy regulations and guidelines placed on lenders these days, they are extremely careful about approving loans for those people with borderline credit ratings.  It is very important for a buyer to know and understand their credit rating prior to applying for a mortgage.  The minimum requirement for an FHA loan is a FICO score of at least 620  with the minimum 3.5% down payment for the application to even be accepted by the lender.  Conventional loans have an even greater minimum credit score requirement.  If your credit suffers from some damage, be sure to actively repair it before applying for a mortgage so that the chances of approval are greater.

Delinquent Credit Obligations

Anytime a borrower has late payments showing up on his or her credit report, where they have paid their bills 30, 60, 90, 120 and sometimes even 150 or more days late, it creates delinquent credit obligations.  With a frequent occurrence of delinquent credit obligations the person’s credit scores are severely damaged and mortgage options become highly limited.  There is some room if this is something that has occurred in the past.  Recent occurrences hurt credit scores the most but even then there may be some lending options for those borrowers.  Underwriters are very wary of a pattern of bills being paid in a delinquent manner.

Bankruptcy Previously Filed

Depending on when the bankruptcy was filed, it can hurt a homebuyer in that it is a clear indication of a borrower’s lack of responsibility and ability to manage his or her own finances.  Most lenders are not concerned with bankruptcies that occurred five to seven years ago if a borrower has re-established credit..

Previous Foreclosure

For homeowners who have not been able to maintain their mortgage payments on a previously-owned property, the chance of being approved for another loan will not come so easily.  Understandably, mortgage consultants are extremely wary of those people who have previously foreclosed on a home.  That is not to say that it would be entirely impossible to obtain a new loan.  In some cases where there was a demonstrated hardship that has been overcome, borrowers may be able to obtain a loan – however not without proof of financial stability and viability.

Loan To Value – Appraised Value Versus Amount Owed Is Too High

Loan to value is the equation that depicts the amount owed on a home versus the value of the property, the higher the loan-to-value, the greater the risk to the lender.  The typical FHA maximum loan-to-value for home purchases is 96.5%.  However for a FHA guaranteed refinance, the ratio is either 85% or 97.75%.  The typical conventional loan-to-value guideline dictates a value of above 80% and requires mortgage insurance or a 2nd mortgage.  Most lenders will not go above 95% loan to value for conventional loans plus the lower the credit score the lower the loan to value restrictions.

Debt ratios – Too Much Debt Versus Income

The amount you earn versus the amount you owe and the corresponding ratio is called the income-to-debt ratio.  The standard expectation practiced by banks is that the amount owed should be no more than approximately 45% percent of total gross income.  The types of debt they take into consideration in this case are student or personal loans, credit card debt or other monthly financial obligations such as car payments.  You can use this calculator to figure out your debt to income ratio and whether you need to work on it prior to applying for a mortgage.

Unstable Work History

Lenders need to be able to verify income that they can count on.  If you have an unstable income history that is not verifiable or consists of several short-lived durations, it demonstrates the inability to maintain long-term employment.  The mortgage loan officer will be looking for demonstrated reliability when it comes to making payments month after month.

Funds To Close – Not Enough Documented Funds

If an applicant does not have enough funds on hand to close on the property, it raises a red flag for lenders.  In addition to a down payment, you will need funds to cover a lending fee, appraisal fee, closing costs, earnest money and documentation and/or processing fees.

Tax Returns – People Have Outside Businesses That Lose Money

In light of the recent tightening of lending practices, increased scrutiny and intense attention to detail during the mortgage application process – lenders are now requiring tax transcripts to be obtained directly through the IRS.  This corroborates that the buyer is being truthful and that the tax documents provided are consistent with those obtained from the IRS.

Owning Too Many Properties

The liability of owning one or more properties can lead up to a significant amount of risk for lenders and end up being too close for comfort.  Unless there is a sizable amount of income that demonstrates the ability to maintain the properties, most mortgage underwriters would rather avoid dealing with the risks at hand of engaging with multi-property owners.

Insufficient Funds – Overdraft Charges On Bank Statement

It goes without saying that evidence of insufficient funds would turn away a mortgage loan consultant because it clearly shows the lack of responsibility on the part of the applicant.  Frequent overdraft charges is yet another serious delinquency that would scare away any creditor, let alone one considering lending such a large amount for a home purchase.

Once-In-a-Lifetime Mortgage Interest Rates You Can’t Afford to Miss!

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First, we need to understand exactly what is happening in the mortgage lending industry – and then we’ll tackle why it is going on. So many real estate professionals, homeowners, investors and business-savvy individuals are dumbfounded at the historically low level of mortgage interest rates available on the market today. We are talking about rates that have not dipped this low since the 1950s!

What’s Going On In the Mortgage Industry?

What types of rates are we seeing in the market today? Well, for starters, the 15-year fixed rate loans that many savvy homeowners of existing homes are tapping into for refinances are yielding incredible rates as low as the low 3’s. Thirty-year fixed rate mortgages are available to qualified buyers at rates that are in the low 4’s. Depending on the amount of money put down on the property, income and credit status plus other factors that lenders are cracking down on, the rates can fluctuate up or down. There is no way to tell whether this decline in rates will continue or whether as we dip into yet another recession we witness even more volatility in the market, but there certainly is speculation.

Why Is All This Happening?

As the economy continues to alarmingly dwindle in both the US market and Europe, US Treasury bond yields remained low resulting in a decline in mortgage rates for two weeks in a row. Regardless of the low rates however, in light of the economic downturn, the number of new home purchases is dismal. The majority of loans being taken out tapping into the historic rates has been refinance applications; as much as one fifth.

Your Last Chance to Refinance

If you are currently in a home, this may be your last chance to refinance while getting such incredible rates on your mortgage. As the mortgage industry continues to tighten its belt and implement stricter guidelines to approve applications, it is essential for you to meet with a mortgage professional to ascertain whether refinancing your existing mortgage is an option for you. It can result in savings as much as about $1,800 each year on extra finance charges.

Potential Homebuyers and Investors Have It Made

This could not be a better time to invest in a new home, whether as your primary residence or as an investment property. With housing prices as low as they are coupled with the unprecedented low interest rates, this is a buyer’s or investors golden opportunity. As anyone in the real estate industry knows, just a few years after such a bust – things usually do stabilize and when they stabilize property values will jump back in the right direction. The best part of this scenario is that the interest rates left behind and locked in will be the incredibly low rates we are seeing today.

Things Are Looking Up

Anyway you look at it, as long as you can endure the sometimes grueling and often difficult mortgage application process these days, it is definitely worth it. There was a 21% increase in new home sales from August 2011 versus August 2010, marking a notable and promising positive trend. Clearly the outlook is slowly going in the right direction.

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At the end of the day, you have to give something to get something and despite the growing concerns over our economic outlook both in the US and in Europe, home sales are happening and people are able to avail the amazing opportunity that is presenting itself in light of these historically low mortgage interest rates. At the very least, every homeowner should visit a mortgage professional to learn what, if any, options there are in their particular situation with which they can potentially come out on top through this whole episode.

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