Life after separation or divorce: What are your mortgage options?
By Alisa Aragon-Lloyd, as seen in "New Home + Condo Guide" magazine, April 8, 2023
With well over 40 per cent of marriages ending in divorce, marriage break-ups affect a wide range of Canadians. For those dealing with the breakdown of their marriage, financial issues can be just as trying as the emotional ones. During a separation or divorce, decisions on housing can loom large: A parent might want to keep living in the same neighbourhood to minimize disruption to the children, or former partners may wish to have two residences close together so that kids can attend one school and sleep over at different homes.
With more than 70,000 divorces in Canada every year, there is a large and growing number of Canadians looking for advice on how to pick up the financial pieces and set out on their own. One of the more important financial issues is the need to maintain a healthy credit rating to help create financial independence and, among other things, provide a solid foundation to approach homeownership solo.
The following are some general tips on how to approach home ownership following a separation or divorce:
• Know what it takes to qualify for a mortgage. Whether you are planning to buy out your spouse’s equity or search for a new home, after any property settlement, if you are divorced or separated, you must qualify for a new or refinanced mortgage with your own income. Most lenders will require a separation agreement before proceeding with a mortgage. Also, alimony and child support payments will have an impact on your mortgage qualification, so consult a mortgage expert to determine your specific situation.
• Keep an eye on your credit rating. After a separation or divorce, it is important for you to establish credit independently of your spouse, especially if you lack a credit history. A mortgage broker can advise you on how to improve your credit score before applying for a mortgage. Debt taken out in both you and your former spouse’s names is considered to be both of your responsibility. If joint debt is not handled in a timely manner during the divorce or separation period, this will impact the credit rating of both you and your spouse.
• Get a mortgage pre-approval. If you are purchasing a home after a separation or divorce, a mortgage pre-approval is vital, as it will clearly indicate how much of a home you can afford.
• Look for smart ways to manage extra expenses and personal debt. A separation or divorce can mean numerous added expenses. Getting a new mortgage can be an opportunity to access equity in your home or consolidate high-interest credit card debt. Some borrowers opt for lower monthly payments, which can create a larger monthly cash flow.
Making a fresh start
If you find yourself having to make a fresh start because of a separation or divorce, you can be faced with many uncertainties and decisions. This is where an experienced mortgage expert can help you take advantage of home-financing opportunities. You can gain valuable insight and information on maintaining or repairing your credit rating, plus a mortgage expert will give you access to a diverse range of borrowing options to help you get back on your feet.