Question: I have been house hunting for the last two months and have found a property that I love. My real estate agent made an offer, which was accepted by the seller. I made an appointment with a local lender who told me he couldn't approve my application because of my marital status.

Here's the situation. I am separated from my wife and currently in the middle of divorce proceedings. We have agreed in principal that she will keep the house as long as she refinances the existing mortgage to remove my name and get enough cash out to pay me half of the equity. We have each ordered separate appraisals and we will determine a value by meeting somewhere in the middle. I expect that my equity share will be about $25,000. My ultimate plan is to use this money as a down payment on the new home but since the refinance hasn't gone through yet, my mother will lend me $25,000 until everything is settled.

After I explained all this to my loan officer, she said I would need to wait until the house was refinanced and my $25,000 equity was in my bank account. I don't understand why I have to wait when the $25,000 is available through my mother. Why can't the lender see that this situation is temporary and approve my loan application? Any thoughts are very much appreciated.

Answer: You are in a tough situation due to the timing of all this. Let me first directly answer your question: Even though your situation appears to be temporary, lenders underwrite loan applications based on the applicant's current scenario at the time the loan is issued - not based on the assumption that some event will occur in the future.

This underwriting philosophy is pretty much industry wide. Lenders don't make loans based upon an expected salary increase or an eventual lawsuit victory. Most loan underwriters will base their decision on the here and now, not what might happen down the road.

I see two problems the lender is having with your application.

The first problem is that lenders don't allow unsecured borrowed funds as a source of down payment. You plan to temporarily borrow $25,000 from your mother until your wife can pay you your half of the equity in the other home. Lenders like to see that the down payment comes from the borrower's own funds. Even though the loan will be temporary, it's not an acceptable source of funds for down payment.

The second problem is your liability on the mortgage secured to your current home. Even if your soon to be ex-wife is making the payments until the loan is refinanced, you are still legally obligated to ensure that the payments are made. If your wife decides to skip town, you're still on the hook. So the lender will count this monthly obligation against you when qualifying for the new loan. Depending upon your income and the amount of money you want to borrow, this could knock you out of qualifying range.

Mortgage lenders have always been gun-shy when granting loans to folks who are in the midst of a divorce because the outcome is often unknown. When a separation agreement is not yet legally finalized, the lender assumes the worst. For all it knows, a judge may force you to pay $5,000 in monthly alimony.

Okay - that's my explanation as to why your loan officer is telling you to wait. But there are other avenues you can explore if you still want to buy this house. There are alternative lending sources, called "sub-prime lenders", that might offer you a loan with little documentation. But expect to pay a significantly higher interest rate.

Another option is to have your loan officer run the numbers and see if you qualify for the loan when she counts the other mortgage payment against you. If so, your mother can lend you the $25,000 if she secures the loan to your wife's house. A real estate attorney can draw up the note and record it in the county records.

Another option is to talk to the seller. Perhaps he will allow you to delay settlement. Maybe offer him more money for the house.

I'm just throwing out some ideas. My advice is to get together with your loan officer and real estate agent and do a little brainstorming. Or, throw in the towel and begin your house search after your settlement is finalized. Who knows? Maybe you'll find a property you like even more.

Published: August 28, 2003

Use of this article without permission is a violation of federal copyright laws.

, the president of PMC Mortgage Corporation in Alexandria, VA, is a mortgage columnist whose work has appeared in numerous consumer, real estate, and mortgage publications. Mr. Savage welcomes your questions for possible use in this column, however because of the volume of mail received, Mr. Savage cannot answer questions individually.