Can Divorce Affect a VA Loan?


divorceAfter a divorce, you may be ready to re-establish roots somewhere new by purchasing a home on your own. Many current and former military personnel may be interested in applying for a VA loan. They generally have great rates and terms. They also have a low, down payment requirement.

However, to qualify for a VA loan, you still need to provide a substantial amount of paperwork for the underwriting process. The underwriter will need to confirm that your debt-to-income ratio meets the program’s guidelines.

Divorce can impact many aspects of your finances. Because of this, it can affect your VA loan application in several ways.


The Need for Additional Documentation and Paperwork

Your divorce decree may specifically state which spouse is responsible for various debts, such as a mortgage, a car loan, credit cards and more. It is common for the underwriter to request a copy of the finalized decree, as well as any additional legal documentation, regarding alimony and child support payments. In addition, the lender may require proof that certain debts have been paid off or are no longer in your name.

The Impact on Your Credit Rating

During a divorce, you may sell the house you formerly owned, sell a car or pay off a car loan. You also may use funds from the divorce to pay off credit cards and more. You may transfer debt to different accounts. Applying for a consolidation loan to get debt transferred into your name is also allowed.

These are only a few of the common steps people take to separate assets during a divorce. The impact of so many changes on your credit report in such a short period of time can be a drop in your scores. However, if your spouse assumed much of the debt, or your debts have been paid off, the opposite result may be true. It is wise to review a copy of your credit report before you apply for a VA loan so that you are aware of your current financial situation.

The Possibility That Finances Are Mingled

Despite the best efforts to separate finances, some couples will still have co-mingled finances after a divorce. For example, while one spouse retained ownership of the house, the mortgage may still be in both names. Depending on how the divorce decree is worded and the laws of your state, the underwriter may be able to disregard the mortgage payment when underwriting your loan request. However, in some cases, you may still be viewed as legally responsible for that debt until the loan is paid off or refinanced.

As you can see, applying for a VA loan can be more complicated after a divorce. However, it is possible for many recent divorcees to still qualify for a home loan. Plan to provide ample documentation to the underwriter upon request. And be patient with the process. By doing so, you may be able to achieve your status of being a homeowner soon.