Divorce and USDA

[Anonymous]

Here's a crazy question for the "gurus":

My husband and I have been separated and in the process of divorce for two years.  I am the temporary custodian of the children (3), and he is not fighting me on that issue.  We had a settlement conference yesterday and are a bit closer in our negotiations.  We have marital equity in the home, which is mortgaged in his name only, with my name on the deed (I know ... sounds crazy).  He lives in that home, and I am currently leasing another house.  I am really anxious to start house shopping, and planned for a USDA mortgage, since my funds are all tied up in the marital equity.  Based on my income and my geographical area, I qualify for the higher income mortgage (I always get Direct and Guaranteed confused).  Our attorneys advised that it is okay for me to enter into a mortgage.  Will USDA approve me, even though I am still legally married but he hasn't resided with us for over two years?  Or, do I have to wait for finalization of the divorce (which could take another year, based on the way he and his attorney have dragged their feet)...

Thanks!

[ShanetheMortgageMan]

You could have two issues:

1) USDA doesn't permit someone who buy a new home with USDA financing where they already own another home, so if you are looking to buy in the same area you very well may need to remove your name from the title of that home.  USDA makes exceptions to this, but it's not something that is guaranteed.  I'd recommend you approach your local USDA office first to make sure it'd be OK, and to find out what documentation they would require (probably something from your attorneys).  You could also find a motivated loan officer who offers USDA and they can do the leg work for you.

2) If you reside in a community property state then his mortgage debt would be included in your debt to income ratio calculation whether you are on the mortgage or not, but since he isn't going to be on your new mortgage you wouldn't have the benefit of his income.

The good news is that income eligibility is only based on who will live in the home, not the income of you and your soon-to-be-ex spouse.

[Anonymous]

Thank you, Shane!  Luckily, I live in Illinois, which is not a community property state.  In regards to the situation with my name being on the deed, I will contact my attorney in regards to the legality of signing a "quit claim" on the title/deed.  I don't want to do anything to disrupt my share of equity in the home.

Best,

Kristi

[ShanetheMortgageMan]

Welcome.  The issue of you owning the other home may still be OK, this is something where it's more of an eligibility question (which USDA handles) than a qualification question (which the lender handles).

[Anonymous]

Got it.  I fired off an email to my local USDA office and requested their guidance.