By Roberta M. Gubbins
Legal News
The problem facing divorcing parties, explained Todd Selin, co-chair of the section, introducing the speakers at the ICBA Family Law Section meeting, is the situation “where there is a marital home, one party wants to stay in the house and can afford to make the mortgage payment, but they can’t refinance it to get the other party off the mortgage, meaning that party can’t get another mortgage to buy their own home.” The meeting was held on October 27th at the State Bar of Michigan.
Refinancing options for divorcing parties:
“We are here to let you know what is out there to help in situations as Todd described,” said Steve Nardin. Assuming that your client who wants to keep the home and refinance the ex-spouse off the mortgage and there is no equity, there is a program that can help.
“The first,” said Nardin, “is HARP (Home Affordable Refinance Program) allows current Fannie Mae and Freddie Mac mortgage holders to refinance up to 125% of home’s appraised value. It is not a cash out transaction.”
Fannie Mae’s DU (Desktop Underwriter, a prequalification tool) Refi + Program and Freddie Mac Relief Open Access Program are the programs, he explained. To discover if your client is financed by either of these lenders, go to their websites (www.fanniemae.com/loanlookup) or (www.freddiemac. com/my mortgage). Other eligibility requirements include being current on present loan, the first mortgage does not exceed 125% of the current market value of the home and the borrower is able to make the payments.
Government insured programs, said Kupcek, include:
FHA Streamline Refinance Program is for existing FHA insured mortgages. It allows borrowers to refinance at a lower rate without having to “jump through all the hoops of a typical re-fi. There is no appraisal requirement meaning lack of equity is not an issue with an FHA loan. If the divorce decree states that a party is to be removed from the mortgage, then that is sufficient documentation. The loan cannot have been late in the last 12 months and the mortgage loan cannot exceed the current loan.”
VA IRRL (Interest Rate Reduction Loan) for Veterans is for any existing VA client. The person with the eligibility has to stay on the mortgage so if “dad” has the eligibility and is leaving, then it wouldn’t qualify. There is very little documentation, no appraisal requirement and may be done with “no money out of pocket.”
USDA Streamline Refinance is primarily used to help individuals purchase homes in rural areas with no money down. There is no appraisal necessary, no down payment, low monthly mortgage insurance, the home must be located in an eligible rural area and there are income limits to qualify.
The parties have to credit qualify for all the programs of refinancing and the party staying must qualify on his/her own. Child support and alimony can be included in the calculation of income.
Purchasing a new home in divorce:
The person who is moving, wants to acquire a mortgage for a new home and is still on the mortgage has a high debt to income ratio making it hard to qualify. The other situation is where the individual doesn’t have a sizeable down payment. There are programs that can help.
“As long as the divorce decree can be provided showing that the other person is responsible for the marital home,” said Nardin, “that debt liability can be deducted from the debt income ratios, making it easier to qualify for a loan.”
This can be done through Fannie Mae and Freddie Mac, however, there are “lender overlays put in place” that limit the ability to use their programs.”
The FHA Purchase Program allows the purchase of a home with as little as 3.5% down and that money can be gifted funds. The income and credit limits are more flexible. The loan is partially insured by the government and the interest rates are lower.
USDA Rural Guarantee Mortgages are offered through national lenders. It allows a person to get into a home with no money down. There are geographic restrictions since they want you to buy rural property.
VA Purchase Program is the program for Veterans. There is no money down, the borrower can have a low credit score, no mortgage insurance and it is insured.
In answer to questions:
Charles Kupcek, Senior Loan Advisor, and Steve Nardin, Mortgage Specialist, of Integrity Financial, are experienced in the mortgage industry, specializing in financing and re-financing. Integrity Financial is based in Okemos. For more information, call 517-853-3200.
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