Getting A Mortgage After A Divorce Or Separation

Making the decision to separate is often a difficult one and restarting the next chapter can be daunting.

It is possible to reapply for a Mortgage for a different home or even purchase the marital home.   Here are a few of the most important things to keep in mind;

Credit:

After separating, keep all of your credit payments up-to-date including all joint credit.  This includes the mortgage (especially the mortgage), all credit cards, loans, car payments, and lines of credit.   You must make the minimum payments on time.  If not, this could negatively affect your mortgage application and approval.

Separation Agreement:  

A separation must be completed. It can be done by a lawyer or it can be done by the separating couple themselves and legally notarized.   For mortgage application purposes, we need to show the lender the division of any assets including the marital home, spousal support, and child support payments.   Child support can be used by the receiving spouse as income but must be counted as a liability for the contributing spouse.

Selling The Marital Home:

If selling the marital home, both parties may have to wait until the sale proceeds are received, divided, and receive their respective share.   It is important to understand that if a bridge loan is necessary it will be difficult and or cost more to put in place through a private lender.  A bridge loan is financing that will satisfy the down payment requirement and funding of the new home purchase before the receipt of the sale proceeds of the marital home.
Most of the major lenders in Canada will NOT allow a bridge loan to be funded during a separation/divorce as both parties have a stake in the sale proceeds and if it is allowed both parties would need to sign the bridge loan agreement. We usually recommend a gifted down payment from an immediate family member or trying to qualify using a borrowed/flex down payment option.  If this isn’t an option, you may have to wait until the home is sold and the net sale proceeds are distributed by the lawyer.

Purchasing The Marital Home:

If purchasing the marital home, it is possible to purchase the home with as little as 5% down.  A new purchase agreement needs to be completed and the normal mortgage process will follow.  The 5% equity requirement will come out of the purchaser’s share of equity as per the separation agreement or a gift from a family member can be used in the case of there not being enough equity.

We have many excellent relationships with family lawyers in Winnipeg and would be honoured to help you through a difficult life change and help you start the next chapter.

Purchasing a New Home:

You can purchase a new home with as little as 5% down and use the proceeds from the divorce/separation agreement as your down payment.   If you have been living separate and apart from your ex-partner or spouse for 90 days you will be considered as a first-time home buyer again and have access to both the First Time Home Buyer Incentive and The Home Buyer’s Plan RRSP withdrawal.