Common Credit Concerns Found with Divorcing Couples:
Mortgage payment is missed. Whether an oversight or intentional, when a mortgage payment is missed there are more repercussions than just a negative hit to the credit score.
- A single 30 day late mortgage loan payment can cause a credit score to drop by as much as one hundred points.
- A single 30 day late mortgage loan payment may prevent you from obtaining mortgage financing from 12 months up to 24 months depending on the loan program and investor.
Marital Home in Foreclosure Proceedings. Many times in a divorce situation there are financial struggles and often times the marital home is involved in foreclosure proceedings.
If foreclosure proceedings have already begun the best option and sometimes the only option is to contact the current lender/servicer to determine if there is a loan modification or alternative plan to salvage the marital home if this is desired. Once the foreclosure proceedings are underway, new traditional mortgage financing is very difficult if not impossible to obtain. Even if the foreclosure proceedings were resolved, the recent mortgage payment history stated above will be a factor in obtaining new financing.
Joint Marital Debt Retained Post Divorce. When it is currently not possible or not the best option to close out joint marital debt the court may order one party responsible for the full payment of specific debts. When this occurs, the debt is considered a “Contingent Liability” and for mortgage financing purposes, contingent liability is not typically included in the debt to income ratio for the party not responsible for the joint marital debt. But what happens if the responsible spouse makes a late payment on the joint obligation?
- The credit score of both spouses will be affected negatively as both individuals are still liable to the creditor.
- For mortgage underwriting purposes, if the debt was ordered to be paid solely by one party per the Marital Settlement Agreement, the payment history of the debt after the contingent liability was ordered may not be considered by the mortgage underwriter.
- Contingent Liability guidelines are applicable to all joint marital debt including mortgage financing, auto loans, installment loans, credit cards, etc.
During a divorce - it is sometimes very challenging to play nice in the sand box. However, turning a blind eye to maintaining credit or intentionally hurting your spouses credit out of spite can have long consequences. Any derogatory event will stay on a consumer credit report for 7 years.
I have worked with many divorcing clients and have seen a number of intentional hits to a spouses credit.
If you would like to download a booklet on the "Top 10 Questions Regarding Divorce and Mortgage", please visit my website at www.jodybruns.com/divorce.html
Thanks, Will Hamm