Divorcing and wondering if I will qualify for a mortgage

by Anonymous
(United States)

I am in the process of getting a divorce and will be looking for a place to live within 2-6 months.

First Time Home Buyer Process

My husband will stay in the marital home because I can't afford it. I will have enough cash for a significant down payment (at least 20%, probably more) as well as plenty in savings and retirement.

My credit is decent (somewhere between 700 and 740). The problem is that I have worked part-time for years to take care of the kids. Also, I am self-employed. I plan to work full-time but currently that is not the case.

My husband is also self employed and we file our taxes jointly. Due to deductions and depreciation, etc, it looks like I barely make any income from my business.

I've thought about renting temporarily but rent in my area is high and is at least twice what my mortgage payment would be.

I really would like to provide a nice, comfortable home for my kids that we could stay in for a good period of time. What options do I have? Help!

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Divorcing and Wondering
by: Jeffrey

Hello and thank you for coming to my website and presenting your questions.

I see you have remained anonymous and I respect that. Since you did not leave an email for me to reply to, I'm assuming you'll be reading my reply in the blog.

First let me say that I'm sorry that a family is breaking up. I went through a divorce in 1980 and it is not a pleasant experience. Now I've been married for nearly 35 years so I'm here to tell you there is a life after divorce.

OK, so in regards to your situation. From what I'm reading, you have great credit scores and money in the bank. All of that is good.

The way I explain the home buying process is for you to imagine you're sitting on a 3 legged stool. Each leg has to be of the same length if you are to achieve a perfect balance. I know the picture I put up looks like one leg is longer, but you get my drift here.

One of the legs is credit. With a strong credit score, that leg of the stool is solid and in place.

The second leg of the stool is LTV or what is better know as loan to value. Since you have enough money to make a 20% or more down payment, that leg is well in place.

Last and not least is the third leg of the stool. This one is DTI or debt to income ratio. For most of us that are self employed, when buying a house, this is the most difficult part of the home buying process to satisfy.

Like you, many people who are self employed show very little income when reporting on tax returns. Because we can deduct expenses that W-2 employees cannot, our income levels tend to appear lower.

All lenders these days will look at this DTI ratio rather closely. They want to know that you have enough income to afford a mortgage payment.

It should be obvious if our savings account looks good and we have awesome credit that we can afford a house payment.

In the past lenders would make a "no document loan" based on the first two legs of the stool I described above. But today, I do not know of any "no doc loans" for homes. Since the mortgage bubble burst in 2008 I have not seen a loan product like that.

Sadly, many people abused this and thus we had the big collapse along with the greedy way the banks sold all these loans.

So I'm not telling you anything you want to hear. Buying a home just may not be possible right now.

Save your money and credit, perhaps rent for awhile. If you can, pay cash for a home or get some W-2 income for the next two years. Another possible way is to find a home that offers owner financing.

I have thousands of readers on this blog, if anybody out there knows of a good mortgage product for self-employed borrowers feel free to chime in on this post.

After all I cannot know everything.

Regards,

Jeff

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