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Q&A with John: Can Mistakes from Ex-Spouse Affect Us Negatively?

John Ulzheimer
John Ulzheimer

ByJohn Ulzheimer

Question:
My Fiance' & I are hoping to buy a home this summer. He was divorced last year & his ex failed to get his name off of the deed within 7 months of divorce & also failed to make payments on time. Will this affect us negatively with the bank? Also would it be best to take a large amount of money we have saved to pay off any debt, or use it all for a down payment.

-S. from Wisconsin

Answer: Thank you for your email. Your fiancé is experiencing what hundreds of thousands of divorced folks go through each year. The court assigns debt liability to one spouse or the other but that does not supersede the original contract that was signed by both of them with the lender. That means that if one party fails to make payments on time the lender can and will hold both liable. That means that any late payments reported to the credit reporting agencies are reported to the credit files of BOTH spouses.

So the answer to your question is yes, it will negatively affect his credit reports and credit scores and therefore the bank will hold that against him.

Regarding the down payment question…

Generally it's best to put more than 20% down on a mortgage because with 20% down (or what's called 80% LTV or Loan-to-Value) the lender will not charge you for Private Mortgage Insurance (or PMI). Especially in today's difficult credit environment lenders feel better the more you put down. However, anything more than 20% is really unnecessary.

If you have to put more than 20% down in order to afford the monthly payment then you're buying too much house and you need to look for another house that is less expensive.

If you have a lot of credit card debt it might be a good idea to get that paid off, or down, before you apply for your mortgage. That way you'll get your credit scores in as good a shape as possible before you apply. And, of course, that means better interest rates.

Good luck to you!!