How does a legal separation affect USDA qualifying?

Qualifying for a USDA Loan after a Legal Separation.

The separation process can require many decisions, such as whether to buy or rent. While this may involve stress, it is important to not overlook mortgage qualifying details which includes understanding USDA loan requirements when a separation is involved.

In today’s short video I will share key points and explain how to qualify for a USDA loan after spouses separate.

How does the income of a separated spouse affect USDA loan eligibility?

As a starting point, remember that a key part of USDA loan qualifying requires income calculation of all household members which also includes the applicant’s spouse.
This is important, because in cases where spouses may have agreed to separate, but are still living together, we must continue to count both spouse’s income towards USDA income limits.

As you can imagine, this can be a touchy subject if the spouses are not on good terms, since it may be difficult to obtain the required documentation from the non-borrowing spouse.

However, USDA guidelines offer flexibility and state the following:

“Include the income of an applicant’s spouse, unless the spouse has been living apart from the applicant for at least three months (for reasons other than military or work assignment), or court proceedings for divorce or legal separation have been commenced.”

Thus, even if you have not filed for divorce or a formal legal separation, provided you have been living apart from your spouse for at least three months, this could allow you to qualify for a USDA loan without needing to document their income.

Additionally, if spouses have not been living apart for at least three months, but “court proceedings for divorce or legal separation have been commenced”, this could be another way for you to qualify for a USDA loan without needing to document your spouse’s income.

However, while this guideline removes the requirement for documenting that income, a legally married spouse may still be required to execute certain documents at time of closing depending on state law. This may apply even though they are not on the loan or on title to the property!

What paperwork will be required to support the separation of spouses?

USDA also states the following for the required documentation when showing that spouses have been living apart:

“Evidence to support living apart for three months may include but is not limited to an apartment lease, bills, or bank statements in their name alone delivered to a different address, etc. This guidance applies to domestic partners, significant others, and fiancée’s that are currently living with the applicant as a household/family unit.”

Also, if you have commenced court proceedings for divorce or legal separation, be prepared to have any legal separation or divorce paperwork prepared.

While it can be possible to qualify for a USDA loan when spouses are separated, different guidelines will apply to the situation, Please note that laws regarding legal separation can vary from state to state and any information discussed in today’s topic is solely meant for mortgage qualifying purposes and not for legal advice.

Remember, do not let the details overwhelm you because that is what we are here for! As a USDA Approved Lender, we will walk you through the USDA loan qualifying process step-by-step. Just call or email to discuss your scenario and let us show you the “Metroplex” difference!

I want everyone to make it a great day, and look forward to seeing you right here for the next tip of the week!