Take Note if Separated and Planning to Buy

Make obtaining a written separation agreement a priority.

In the event of a separation, lenders will not fund a mortgage until you have a separation agreement in place. To highlight the point, here are a couple of examples.  

Buyer A: After separating and renting for six months, Buyer A wanted to own a home of his own again. On viewing a listing for $160,000 through the listing salesperson he wanted to buy it.

When asked about the financing he explained that he had recently separated and was quite confident his bank would lend him the money to buy. The matrimonial home was already sold and his share of the assets would give him enough money for a 20% down payment, plus the closing costs. The money was being held in trust pending a separation agreement which his wife had already verbally agreed to.

No Separation Agreement, No Mortgage

Before long, Buyer A had an accepted offer conditional on obtaining a mortgage. Though he qualified for the mortgage, the lender would not approve the mortgage or advance funds on closing without a written and signed separation agreement. A verbal definitely wouldn’t suffice.

Because the offer was due to expire, the seller agreed to extend the mortgage condition on the buyer’s assurance that having his wife sign a separation agreement was not a problem. After all, she had already agreed.

Yet, no written agreement got signed, the time period in the offer expired and another buyer purchased the home.

Still No Agreement. To date the various wrinkles have yet to be ironed out between the two spouses and the would-be buyer continues to live in a rental apartment with no written separation agreement.

Buyer B: The lender approved Buyer B for a mortgage of $175,000. He and his wife recently separated and agreed to sell their matrimonial home which has a small line of credit registered against it. Buyer B continues to live in the home and in the last two months has devoted spare time to getting rid of years of clutter and fixing small deficiencies.

He now meets with the REALTOR®.

Before listing the home, he wants to clarify his needs for buying another. He especially doesn’t want to sell his home and then be rushing around and feeling pressured to buy. He prefers to find another home before selling first. He has even considered buying out his spouse so that he doesn’t have to move.

What About the Agreement?

The REALTOR asked him if he and his wife worked out a separation agreement. He said no, that his wife would not commit to an agreement until the home was sold.

His REALTOR suggested he again talk to the lender about obtaining a mortgage under the circumstances. The lender made it clear that in spite of Buyer B’s financial ability, they could not lend the money without a separation agreement.

Without a separation agreement that spells out how the assets are divided, a lender will not approve a mortgage.

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