The NFCC often receives readers questions asking us what they should do in their money situation. We pick some to share that others could be asking themselves and hope to help many in sharing these answers. If you have a question, please submit it on our Ask an Expert page here.
This week’s question: I’ve been divorced for more than three years. In my agreement, I gave full ownership of land and house to my ex-wife with the understanding that she refinance and get my name off. It’s been three years and she says that her credit is too bad and still cannot get refinanced, though I know that she is making all payments and is steadily self-employed. This is had a terrible effect on me, I cannot get a decent loan because of this. What should I do?
Divorce can have long-term and unanticipated effect on your credit, especially if you are dealing with an uncooperative ex-spouse. The most important thing for you to do now is to review your divorce decree and talk to a family law attorney to discuss your options. If your lawyer concludes you have a case and your ex-wife is breaching your divorce decree, you may be able to take legal action to make her comply or indemnify you.
A divorce decree and your mortgage
A divorce decree is a legally binding contract between you and your ex-wife. Your mortgage company—or any creditor, for that matter—won’t care what it says as long as you signed the contract jointly. If you signed the mortgage note, you are responsible for the loan, even if it’s in default. And they can come after one or both parties to collect payment if necessary. Usually, the most common way to be removed from a mortgage is through refinancing. There are other options to remove someone from a joint mortgage, such as a loan assumption or modification. However, if your ex-wife does not meet the lending criteria to refinance, it is unlikely that she will qualify for other options that require her to be financially ready to show she can manage the loan by herself. It’s still worth a shot to reach out to your mortgage lender and determine what options they can give you. Yet, another option is to sell the property. Unfortunately, whatever option you choose will still require your ex-wife’s cooperation unless the courts are involved.
Your mortgage and your credit
It’s essential to determine why you don’t qualify for a decent loan. There could be multiple reasons, and being on that mortgage can be just one of them. If your ex-wife has been making on-time mortgage payments, your credit score should not be affected negatively. On the contrary, it can help boost your score and add a positive credit history to your credit report. But, having a large mortgage, additional debt, and a low income may disqualify you from qualifying for a new loan with decent terms because you will have a high debt-to-income ratio (DTI). Lenders review your DTI to help determine your repayment ability. To roughly calculate your DTI, add your debts (credit card payments, loans, rent, and mortgage, etc.) and divide your total by your gross monthly payment, which is your income before taxes. That percentage should give you an idea of how the overall debt in your credit report compares to your current income. If it’s too high, you may want to decrease the balance in some of your debts and increase your income.
Focus on the now
I suggest you review your credit reports to identify any other potential areas of improvement while you find a solution to deal with your ex-wife. You can get free weekly credit reports from Experian, TransUnion, and Equifax through AnnualCreditReport.com through April 2022. Overall, an excellent way to boost your credit is always to make your payments on time, keep balances low and ask for credit sparingly. In your situation, you are somewhat limited on what you can do to ensure the on-time payments of the mortgage without the cooperation of your ex-wife. Focus on what you can do now and work with a family law attorney to determine what legal recourses you may have to make your ex-wife comply with your divorce decree. Good luck.