If not already, then at some point in the future you and your spouse will live separately. Like many people, you may think about buying a house after divorce. If this is your goal, then there are several things you will need to consider. Protecting your finances will need to be a top priority. The sooner you start planning the more prepared you will be to accomplish your goal.
Here are 4 Financial Tips to Buying a House After Divorce
Establish Your Income
It will be important to establish your own income. For you, this may be easy or challenging. Perhaps you're established in your career and currently earn income. Or, perhaps you are receiving income from a pension, social security, dividends or interest. Regardless of your situation, it will be important for you to establish your income because lenders consider income as part of your ability to repay a mortgage. Sporadic income will reflect negatively on your ability to repay a mortgage.
Establish Your Cash Flow
The amount and frequency of your income will impact how much house you can afford. It will also determine the funds available to pay your monthly expenses. You will need to do an evaluation of the money available for housing expenses. This is calculated as:
Income - Basic Expenses (before housing) = Money Available for Housing Expneses
You will then need to calculate the expenses associated with buying a house after divorce. It might help to think of your expenses and how they fall into these categories:
- One-time Expenses
- Ongoing Monthly Housing Expenses
Once you know your ongoing monthly housing expenses you will calculate how much money you have left after basic needs and housing expenses - this is called discretionary income:
Money Available for Housing - Ongoing Monthy Housing Expenses = Discretionary Income
Helpful Tip: It can be challenging to think of all the potential expenses related to buying and owning a home. Here are some things to keep in mind about one-time purchase expenses and ongoing monthly expenses:
One-time Expenses of Buying a House After Divorce:
- Down Payment
- Closing costs
- Funding the escrow (prorated current year real estate taxes)
- First year of insurance premiums
- Appraisal fees
- Inspection fees
- Required repairs
- Title insurance
- Loan processing fees
Ongoing Expenses of Buying a House After Divorce
- Mortgage payment (principal, interest, taxes and insurance)
- Pest control
- Utilities: electric, gas, water, sewer, trash, cable, phone, internet
- Security system
Establish Your Credit
You will want to establish your own credit as soon as possible. This could take some time if you have little credit history or when your credit has been established jointly with your spouse. While married, you may not have opened loans or charge cards in your name individually. Most joint loans and credit cards are closed during the divorce process. The closing of those accounts can negatively impact your credit.
If this happens, then it can be difficult for you to qualify for loans and charge cards in your name solely. There are steps you can take to establish credit before, during and after divorce.
Protecting Your Credit
Unless you are paying cash, your credit will be the most important factor in your ability to buy a house. Therefore, it is very important to protect your credit before, during and after divorce. The best approach is to be proactive.
Here are some steps you can take today to protect your credit:
- Pay individual and joint bills on time, every time. This is true before, during and after divorce. The best way to do this is to set bills up on auto pay or request that your spouse do so. This will help you avoid unnecessary late fees, as well as unnecessary reporting to the credit bureaus. Life is busy and it’s easy to forget about certain bills. So, make your life easier by setting up automatic payments for everything that you can. Also, you may not know this, but creditors generally care about the name(s) of the individual(s) on the loan or account. They don’t generally care about the agreement outlined in the divorce paperwork. Therefore, they will try to collect payment from the people on the account. This may be different than than the agreement made in your divorce settlement.
- Pull your credit report. The best protection is prevention. Be informed and pull your credit report. You can pull your annual credit report for free. Review your report and make sure you know what accounts are open in your name – individually and jointly. If you and your spouse agree that one person will be responsible for a joint debt after divorce, then make sure the debt is either:
- Refinanced into the responsible person’s name
- There is some agreement to automatically make the payment and there is regular reporting of the payments made
- The joint debt is paid in full during the divorce process or as part of the divorce settlement
Transitioning the divorce process while planning for your future is multifaceted and requires a multipronged approach. Certain divorce processes support a calmer, better planned transition than others. To learn about your Missouri divorce process options contact one of our experienced St. Louis Collaborative Law professionals today.
Nicole Davis is a trained collaborative law professional. She is experienced with helping couples achieve a good financial settlement. To learn more about divorce finances give her a call or visit her website.