Divorcing Your Mortgage Newsletter. May 2018, bringing you Divorce Trivia.
The History of Trivia is Anything But Trivial
Calling all trivia buffs! You may school your friends in every random fact from pop culture to World War II, but how much do you know about the history of trivia itself? The dictionary defines trivia as “unimportant facts or details,” we tend to disagree: we think trivia is of the utmost importance!
The term trivia, as we think of it today, dates back to 1589, referring to insignificant pieces of information, which were only interesting to a few educated folks. It wasn’t until the 20th century that we began to associate trivia with factoids like we do now.
The 1950s marked an important time in the history of trivia, as quiz shows such as Dotto, The $64,000 Question, and Twenty One became extremely popular. These shows had high ratings until it was revealed in 1959 that the producers of these shows were feeding answers to the contestants. The Quiz Show Scandals, as they were known, resulted in quiz shows disappearing from network television. It wasn’t until 1982, when Merv Griffin came up with the idea to reintroduce Jeopardy!, that we again had a quiz show on network TV. After the continuing popularity of Jeopardy!, new shows started to pop up in the 1990s, such as Who Wants to be a Millionaire and Win Ben Stein’s Money.
DID YOU KNOW?? This Month in History
1st: The first United States Postal Card was issued in 1873.
1st: The Empire State Building opened in 1931.
4rd: Washington, D.C. was incorporated as a city in 1802.
4th: West Virginia imposed the first state sales tax in 1921.
7th: The first inaugural ball was held in New York to honor President and Mrs. Washing-ton in 1789.
10th: Benedict Arnold was tried for treason in 1779.
14th: The first Olympic Games were held in the United States in St. Louis, MO in 1904.
20th: Charles Lindbergh began his historic solo flight in 1927.
31st: The last Ford Model T automobile was made in 1927.
Often times in life you need to think on your feet, come up with quick solutions or be ready with an answer to rapid fire questions. This is a key skill that can help you not only in your personal life, but in business as well.
You are deep into a heated divorce settlement and there is no time to consult your reference materials. This is the moment when all of your training and experience can make or break your case. Within the next few seconds you have to come up with the right answer and you have to formulate your response in such a way that it will convince the opposing side that you know what you are talking about. What should you say and how should you say it?
The Importance of Thinking on Your Feet
Divorce Lending Trivia!!
Here are some great and common factoids you should know when working with Divorcing Clients who own real estate and need new mortgage financing as part of the divorce settlement.
Question: The ability to use the receipt of alimony/maintenance as qualified income for obtaining mortgage financing requires the ability to show the income is consistent and stable. In order to document this income is stable and consistent, how many months of documented receipt is required?
Answer: You must be able to document the receipt of six (6) months alimony or maintenance payments along with documentation to support the income will continue for at least 3 years for conventional financing.
Key Tip: If receipt can be documented for the required six (6) months and will continue for three (3) years but payments are not made consistently and timely, the income may not meet the stability requirement for mortgage underwriting guidelines. Always recommend that support payments are made timely and consistently every month to avoid any issues through loan approval!
Question: It is not an uncommon thing to have cash buyers in the real estate market these days. Paying cash is being used as an incentive for sellers to accept an offer due to a lack of inventory in many markets or to avoid many of the mortgage underwriting guidelines in a divorce situation. The key question for cash buyers in any situation needs to be: “What is your intent for replenishing your cash reserves?” If the intent is to take a mortgage out in the future, how many days does the cash buyer have to apply for a mortgage in order to avoid the potential loss of the mortgage interest deduction?
Answer: You must apply for a mortgage within 90 days of purchase in order for the IRS to consider the new debt as acquisition indebtedness. Otherwise, the new debt will be considered home equity indebtedness and the mortgage interest may not be tax deductible. (Texas is an exception. If you purchase a home in cash and then want to take some cash out, you are always subject to Texas Cash out laws – Texas A6 Cash out refinance.
Key Tip: Recent tax reform has significantly changed the mortgage interest deduction. The acquisition indebtedness limit was reduced from $1,000,000 to $750,000 and the home equity indebtedness deduction has been removed until 2025!
Question: Refinancing the marital home in a divorce situation is typically required in order to remove one spouse from the mortgage and to pay the other spouse their share of equity in the property. The number one mortgage lender error when working with divorcing clients is to assume the new mortgage is a “cash out” mortgage which carries higher interest rates and limits access to the property equity. In order for the borrowing spouse to qualify for a standard non-cash out refinance, how many months does the borrowing spouse need to be on title to the subject property? See my article on how to divide marital equity in Texas – Texas Owelty Liens
Answer: The borrowing spouse must currently be on title to the marital property for at least twelve (12) months prior to the mortgage loan application in order for the new mortgage to be considered a non-cash out mortgage. If the borrowing spouse has been on title for less than the required time, the new mortgage must be considered as a cash out refinance and will limit the new loan to value of the home at 80%. If the current mortgage on the property is 75% of the value, the borrowing spouse may only take an additional 5% equity out of the property in a cash out scenario. If the vacating spouse was to receive 15% of the remaining equity in the property, the borrowing spouse would be short on the equity buyout by 10%.
Key Tip: Every mortgage application for a divorcing client has many turns and unique situations. Working with a Certified Divorce Lending Professional (CDLP) during the settlement process can help your divorcing clients avoid many pitfalls and mistakes commonly made in the mortgage process. A CDLP can help you set your divorcing clients up for success and make obtaining the new mortgage easier and avoid many commonly made mistakes.
Why you Need a Certified Divorce Lending Professional (CDLP) on Your Professional Divorce Team.
A professional divorce team has a range of team players including the attorney, financial planner, accountant, appraiser, mediator and yes, a divorce lending professional. Every team member has a significant role ensuring the divorcing client is set to succeed post decree.
A Certified Divorce Lending Professional brings the financial knowledge and expertise of a solid understanding of the connection between Divorce and Family Law, IRS Tax Rules and mortgage financing strategies as they all relate to real estate and divorce. Having a CDLP® on your professional divorce team can provide you the benefit of:
• A CDLP is trained to recognize potential legal and tax implications with regards to mortgage financing in divorce situations.
• A CDLP is skilled in specific mortgage guidelines as they pertain to divorcing clients.
• A CDLP is able to identify potential concerns with support/maintenance structures that may conflict with mortgage financing opportunities.
• A CDLP is able to recommend financing strategies helping divorcing clients identify mortgage financing opportunities for retaining the marital home while helping to ensure the ability to achieve future financing for the departing spouse.
• A CDLP is qualified to work with divorce professionals in a collaborative setting.
• A CDLP can provide opportunities in restructuring a real estate portfolio to increase available cash flow when needed.
• A CDLP maintains a commitment to remaining educated and up to date in the ever changing industry guidelines and tax rules as they pertain to divorce situations.
• A CDLP is committed to providing a higher level of service to you and your divorcing clients.
The role of the CDLP is to help not only the divorcing client but the attorney and financial planner understand the opportunities available as well as the challenges divorce can bring to mortgage financing during and after the divorce. When the CDLP is involved during the divorce process and not after the fact, many potential financing struggles can be avoided with valuable and educated input from the Certified Divorce Lending Professional.
“Nothing matters more in winning than getting the right people on the field. All the clever strategies and advanced technologies in the world are nowhere near as effective without great people to put them to work.” – Jack Welch, Winning
Richard Woodward, NMLS 217454
Your Local, Direct, 5 Star Rated Mortgage Lender, Specialty Lending Manager
Office: (214) 945-1066
Service First Mortgage NMLS 166487
6800 Weiskopf Ave #200, McKinney, TX 75070
Licensed by the Texas Department of Savings and Mortgage Lending (SML) Mortgage Banker Registration. Service First Mortgage is an Equal Housing Lender. This is not an offer of credit or commitment to lend. Loans are subject to buyer and property qualification. Rates and fees are subject to change without notice. The views expressed on this site are those of the individual author and do not necessarily reflect the positions, strategies or opinions of Service First Mortgage or its affiliates.
This is for informational purposes only and not for the purpose of providing legal or tax advice. You should contact an attorney or tax professional to obtain legal and tax advice. Interest rates and fees are estimates provided for informational purposes only, and are subject to market changes.