Divorce is a complex topic. Beyond legally separating from your partner, it typically involves dividing assets. Here we'll take a look at VA loans and divorce from two angles. First, what happens to your VA loan during a divorce, and second, your VA loan eligibility after a divorce.
Separating assets isn't typically an easy thing to do, and things can get even more complicated when a significant asset like a home is involved.
With that in mind, typically, one of the better options when going through a divorce is selling the home, paying off the mortgage, and deciding how to split the remaining funds.
However, what if you or your spouse doesn't want to sell? Your next option is removing them from the loan.
The easiest way to remove your spouse from a VA loan and restore your entitlement is typically through refinancing.
Refinancing typically has upfront costs but is worthwhile in the long run if you plan to reuse your VA loan benefits. For example, if your spouse receives the home in a divorce settlement and doesn't refinance, your VA loan entitlement is wrapped up in the home until they refinance it or sell and pay the loan in full.
Without paying the loan in full, you'll have reduced VA entitlement and potentially not enough entitlement remaining for a future $0 down purchase.
You can get a VA loan after a divorce, but keep in mind what a divorce can do to your credit, income and entitlement.
During a divorce settlement, it's common to stop paying debt obligations. Typically, spouses may disagree on who pays what and let them fall through the cracks.
If at all possible, do not do this. It is in the best interest of you and your spouse to agree on paying debts until the divorce reaches a settlement. Otherwise, your credit may take a hit and put you below the threshold to obtain financing directly after the divorce.
Another consideration affecting affordability is your income. Alimony or child support factors into your income picture with VA lenders and may decrease your buying power. Additionally, if you counted your spouse's income on the first loan, you won't be able to do that with future loans.
The last piece is VA entitlement. We've already covered that briefly, but if the non-military spouse receives the home, your VA entitlement will be wrapped up in that home until it gets refinanced or sold.
Diminished VA entitlement doesn't mean you can't get a VA loan, but your $0 down buying power may be limited.
For an ex-spouse who is not a Veteran, you do not have access to the VA loan. VA loan benefits are solely for Veterans, service members and surviving spouses.
Other low-down-payment mortgages, such as the USDA loan ($0 down) and FHA loan (3.5% down), may be a viable option.