I am on disability and I am divorcing. How can I keep my house with a low income and a good credit rating?
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Dear credible money coach,
My husband and I are going to be filing for divorce soon. He doesn’t want to take responsibility for paying the mortgage. My name is on the deed but the mortgage is in his name. I am on disability and my credit rating is so low that I don’t have one. If we refinance before the divorce, I could easily pay to keep the house. We live in a rural area, built the house and have been here for 15 years. I would hate to lose it. Is there anything that could help me keep the house?
Hello Raylene. Divorce is stressful and brings significant changes, including financial complications. Understandably, you fear keeping your house in the midst of the upheaval of your marriage ending.
When it comes to financing or refinance a low income home and credit score, you have options. Talking to a qualified mortgage expert might help you identify which one is best for you, but in the meantime I’ll give you some basic information to get started.
What happens to a house when the spouses divorce
Typically, when two people divorce, the court asks them to divide property owned together during their marriage, including real estate.
The court and the couple can decide that:
- One person keeps the property.
- One person can keep the property after buying the other’s share.
- The house will be sold so that the couple can share the proceeds.
From your question, it looks like you and your husband have decided that you will keep the house. If you haven’t already, make sure you have it in writing as part of the divorce decree.
Refinancing in the context of a divorce
Refinancing the existing mortgage in your name may be the easiest solution if you qualify for mortgage refinancing alone. Although low income and a low credit score can make it difficult to qualify for conventional refinancing, the federal government has options that can help you.
But first, you need to know what kind of mortgage you have, such as conventional, FHA, or USDA. Refinancing a conventional mortgage will likely require a credit check and an income check, and you might have difficulty qualifying. You can have more options with a USDA or FHA loan.
You mentioned that your house is located in a rural area. If the current mortgage in your husband’s name is a Rural Development Loan from the United States Department of Agriculture, you may be able to refinance it in your name with a USDA Simplified Refinance Loan. You’ll need to meet other eligibility criteria, like making one-off payments for the previous 12 months, but you won’t need a credit check. You also won’t need a home inspection or a certain debt-to-income ratio.
If the current mortgage is not a USDA loan, you may be able to apply for a new USDA loan to “redeem” your husband’s interest in the property. USDA loans do not have minimum credit score requirements, but you must demonstrate that you are ready and able to pay it off.
USDA has a eligibility tool to determine if you are qualified.
If your current mortgage is a loan guaranteed by the Federal Housing Administration and you have a good payment history, you may be eligible for FHA refinancing. Although the interest rate may be higher than a conventional loan, it does not require a credit check, income verification, or re-appraisal of the property.
In other words, it may be easier to qualify for an FHA refinance than a conventional loan. But you may have to pay closing costs, and the lender usually requires you to carry mortgage insurance.
If your current mortgage is not an FHA loan, qualifying for a new FHA loan might be another option.
One last word
Even amicably, divorce is complicated and emotional. My best advice is to take these ideas and speak with a qualified mortgage expert and divorce lawyer. They will have more information about your situation and will help you make the best decision based on your finances and future plans.
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About the Author: Laura Adams is a personal and small business finance expert, award-winning author and host of money girl, a top rated weekly audio podcast and blog. She is frequently cited in the national media, and millions of readers and listeners benefit from her practical financial advice. Laura’s mission is to empower consumers to live richer lives through her work as a speaker, spokesperson and advocate. She received an MBA from the University of Florida and lives in Vero Beach, Florida. Follow her on LauraDAdams.com, Instagram, Facebook, Twitter, and LinkedIn.