Disclose support obligations when mortgage shopping: Silbert
By AdvocateDaily.com Staff
This is the final instalment in a three-part series on the intersection of family law and real estate law. In this post, St. Catharines family lawyer Sharon Silbert explores what those paying support need to know about how their obligations impact lending decisions.
If someone emerges from a divorce and is making support payments, they may not qualify for as large a mortgage as they thought they would, St. Catharines family lawyer Sharon Silbert tells AdvocateDaily.com.
Often those who have separated look to buy a house as they rebuild their lives. But, Silbert, principal of Sharon B. Silbert Professional Corporation, says they might not be eligible for the amount they hoped for.
“Support payments that a person is required to make, whether it’s pursuant to a court order or a separation agreement, are treated by many lenders the same way as debt payments when the lender is reviewing an application for financing,” she says.
“Support obligations affect the amount of income you can put toward mortgage payments in the same way as a monthly car expense. And it is going to be relevant to lenders who may be reviewing an application for financing for individuals who have separated.”
Silbert suggests anyone considering purchasing a home after a split should investigate their mortgage capacity before making any final decisions or, more importantly, signing on the dotted line.
The situation is further complicated by new mortgage rules that kicked in Jan. 1, which increase the stress test for those seeking a mortgage to ensure they can handle higher interest rates in the future.
Those who agree to a firm purchase, with no conditions, are at risk, Silbert says.
“Sometimes this issue connects with the importance of having a separation agreement if you are applying for financing to purchase a home because people don’t understand that the topics covered in a separation agreement are relevant to the mortgage lender,” she says.
Lenders require separation agreements to determine how much they can loan the individual. A key part of what they look for is their obligations to make support payments to a former spouse.
That’s a critical issue and may not become clear until it’s too late. It might not always come up in discussions with the real estate agent or even the lender in the pre-approval process, says Silbert.
“That could be one of those things that comes as a nasty surprise to someone when they’re trying to finalize their financing,” says Silbert.
The bottom line is that anyone considering buying or selling a home around the time that they’re dealing with family issues needs to investigate how one affects the other because there is a great deal of overlap, she says.
“Family law issues are relevant to financial transactions and the prudent thing to do is to make sure those issues are properly addressed before diving back into the real estate market following separation,” Silbert advises.
Click here to read Part 1 — the perils of purchasing a new home without having a separation agreement in place.
Click here to read Part 2 — accessing proceeds from the sale of your home during a marital split.