Having an understanding of your credit file, credit activity, and your current Credit Score is important. Especially if you are entering into new finance contracts
Damage may have been done to your credit file during financial separation without you being aware. It can occur by not paying the mortgage on time, missing a utilities bill payment, or even because you have not received a “reminder” notice, and the insurance or phone bill has become overdue.
To prevent you from inadvertently defaulting on any credit facilities, be sure to redirect your mail, or ensure your bills are sent to your email.
If you wish to check your credit file, here are some reputable sites which can provide you with a free credit check:
A negative credit score may impact a variety of financial transactions you can do in the future, including home approvals, car loan (asset finance) and credit limit increases/changes.
By understanding your credit score and being aware of any negative credit history, you will be better positioned to ensure a successful outcome on your next Credit Application.
Divorce is frightening, even before you ‘take stock’ of all the financials. See a professional to help you “unpack” the process, and understand what will work best for you, so you can reach financial recovery sooner.
Divorce can be very frightening, and is an emotionally volatile time for all parties involved (even grandparents). It can be very overwhelming to think about all the things that need to happen before you can start moving forward with your life. Most people either don’t want to think about, or don’t know where to start, with the financial steps they need to take before they can reach financial recovery.
Asking for help is a good option and there are many good mortgage brokers that can help you “unpack” the process. Du ring a divorce it is common for one party to want to keep the home, especially if the children have grown up there. In this instance, both parties need to have a good understanding of their maximum borrowing capacity, so they can individually or jointly decide on the best outcome for themselves and the children.
When John and Mary were going through a financial separation, Mary was seeking a 50% split of their combined assets. After seeing a mortgage broker, they learned that John’s maximum borrowing capacity was $50,000 below what was needed for a 50% split of their combined assets.
Once Mary could see that asking for a further $50,000 would mean that John would be forced to sell the house, they agreed that Mary would instead receive a lower up-front payment and regular payments over time to make up the difference.
The information they gained from the meeting with their broker helped them to decide on the figures in their Binding Financial Agreement.
Call Rachael Hunter if you have any questions relating to your figures in your Binding Financial Agreement.
Looking to buy a house after a divorce and got some kiddos in the mix? Talk to Rachael about how to understand your borrowing power..
Did You Know About … Borrowing Capacity, Children and Divorce
According to the Henderson Poverty Index (HPI), the average single person needs around $2,200 per month to cover the basics such as food, amenities, rent and the other important stuff. When applying for a loan, creditors generally take into account that, even if your gross monthly income is a particular figure, not all of it will go towards paying back a loan.
Now, how about adding kids into the mix? While we love them, they do come with a bit of financial baggage in that we have to buy more food, use more electricity and water, and so on (what’s not to love?). Let’s assume that each child you have adds roughly $400 to the existing $2,200 the HPI says you need for basics. Now we have more untouchable money that can’t be contributed to repayments, meaning that lessens what we can borrow.
That might be fine for a dual-income couple with two kids, theoretically paying for a child each, but what about after a divorce, then what? Do you now have to pay for both children with a single income, making about $3,000 monthly to cover the basics (initial $2,200 plus 2 kids at $400 each)? Good news: not in all cases!
People with 50% custody of their children have an option to reduce (in creditors’ eyes) the amount of money they cannot use to service their debt. Again, it’s just a case of some simple math. As you may have 2 dependants for 50% of the time, it is possible for you to claim having only a single full-time dependant as:
50% custody for 1 child + 50% custody of another = hypothetical 100% custody for a single child.
This could bring the potential $3,000 you have to put aside each month down to $2,600, which may not seem like much, but can lead to creditors willing to lend more money to you, and could mean the difference between the house you can afford and the house you want!
Its little things like this that can make all the difference, and we believe that by increasing your knowledge and awareness of these things, that you can be empowered to make your own educated decisions. We’ve all been in a position where we just nod our head and agree with something even though we don’t have the slightest idea of the concept just explained to us. Now you’ve got a bit more knowledge on the subject, hopefully it’s less scary than you once thought.