A reader asks, “I am separated from my husband…and want to buy me a home. We do not have any children together and I do not want alimony, he can have the house we once shared. He has agreed. I am using a down payment from my 401k from my job. What do you know about these situations?”
While this question is far too general to answer specifically, we can talk about some of the basic issues a borrower in this situation might face.
The big question in this situation is whether the reader is obligated on the first home. FHA home loan applications are reviewed for three basic things–credit rating, debt-to-income ratio, and verifiable income. There are other issues, but for this reader question these are “the big three”.
If the borrower is already obligated on the first mortgage, the lender must include that obligation when considering the debt-to-income ratio unless the FHA loan applicant has something official stating he or she no longer has an obligation to the first loan. The requirement for this may vary–a court order or divorce decree stating such in writing may be sufficient in most cases, but check with your lender and the FHA directly to be sure.
A non-binding agreement, a verbal agreement between ex-spouses or other informal arrangements may not be enough to keep the former obligation from being considered by the lender for purposes of calculating the debt-to-income ratio.
This is a situation that could potentially hurt a borrower’s chances for a new FHA home loan because the lender is obligated to calculate the amount of monthly financial obligations (including the new home loan, if approved) against the borrower’s income. Does the old loan obligation PLUS the new home loan mortgage payment push the borrower’s debt-to-income above the maximum allowable limit?
Borrowers can and do bring “compensating factors” to the table that can help even out the debt-to-income ratio including larger down payments, substantial cash reserves, or other things acceptable to the lender. It’s important to ask the lender what compensating factors could help the borrower in situations like this, and what to do in the event that the original home loan still counts against the FHA loan applicant’s debt to income calculation.
Of course, if the FHA loan applicant is not obligated on the first home loan, none of this is an issue. The usual credit, employment, and income factors are considered by the lender regardless of marital or family status according to Fair Housing Act laws.