Buying a home after divorce could prove to be more difficult since you now only have one income to use for qualifying purposes. If you had a messy divorce, you might even have messed up credit too. Does this mean it’s impossible to get back on your feet and buy your own place?
Luckily, it doesn’t. There are a few ways you can get yourself back on track and buying the home you want in your newfound freedom.
Assess Your Situation
Before you jump back into homeownership, stop and think where you stand. Is the divorce final? Are you through with the court costs and lawyer fees? Are all debts separated and you know where you stand as far as your own obligations?
If you are not 100% sure that the divorce is finalized and the details worked out, you might want to wait. You’ll need to make sure you buy a home that you can afford. What if something comes up and you end up with a liability you weren’t aware would be your responsibility? Waiting until everything is finalized and you know exactly where you stand will give you the best results.
Work on Your Credit
Next, you’ll need to work on your credit. If the divorce damaged it, you may have some repairing to do. You might have more to worry about than you realize. If you didn’t handle the bills, but your name was on the obligations, you’ll need to see if your ex-spouse paid the bills or let them go. Sometimes out of anger or the inability to pay, bills can get ignored during a divorce, leaving you with damaged credit and large liabilities looming over your head.
Pull your credit report and see what’s on it. Are there outstanding debts you have to take care of? Are there debts on there that no longer belong to you? If so, you’ll need proof that they are no longer yours. You can usually satisfy the requirement with the court documents showing the liability is now that of your ex-spouse.
If you have bad credit, start repairing it. Make sure you pay your bills on time for starters. You can also apply for your own credit, such as a store credit card or even a secured credit card. Start establishing some credit in your own name. It’s important that you stay on top of those accounts, though. Pay the bills on time and don’t keep unnecessary balances on your credit cards.
You’ll likely need some type of down payment as you try to buy a house after a divorce. Even if you take an FHA loan as that has the most forgivable requirements, you’ll need to put 3.5% down on the home. Figure out ways you can save even small amounts.
You may need to stop simple habits, such as coffee shop stops, take on a side gig, or even take a second job. You don’t have to take the extra work on forever, but just long enough to get you the money you need for the down payment and closing costs. The more money you put down on a home, the higher your chances of approval.
Figure Out What You Can Afford
Your debt-to-income ratio is the next most important factor in the loan approval process. If you go the FHA route, you’ll have some looser guidelines. FHA loans allow DTIs of 31% on the front-end and 41% – 43% on the back-end.
You can determine how much this comes out to based on your income. You’ll need to know your gross monthly income to determine how much you can afford. For example, if your gross monthly income is $6,000, you may be able to qualify for a housing payment of up to $1,860 and your total debts should not exceed $2,580.
Once you make sure you have decent credit, a low debt ratio, and enough money saved up, it’s time to shop around for a lender. You should do this step before you try to find a home. A lender can tell you how much you can afford and/or qualify to receive.
We recommend that you shop with at least three lenders so you can see what all three have to offer. Some lenders may be more lenient in their guidelines and offer you a larger loan. Other lenders might be a little more restrictive and/or cautious when lending to you.
Taking the three preapprovals, you can figure out which one suits your needs the most. You can compare the total cost of the loan (interest and fees over the life of the loan) as well as the terms. This way you can carefully determine which loan is right for you.
Buying a home after divorce might seem like an uphill battle, but it’s possible. You have to prepare yourself as best you can by fixing your credit, saving money, and making sure you have adequate income to cover the loan. Don’t rush into the process or get in over your head. Make the decision slowly and choose the home that you know you can comfortably afford on your own.