Why Would a Mortgage Lender Need a Divorce Decree?​

Divorce can be scary, especially if you’re attempting to sort out your financial life once more and purchasing a new home. If you’ve divorced and are in the middle of a mortgage application, you might be surprised when your lender asks for a copy of your divorce decree. Why would a mortgage lender need a divorce decree​? But this isn’t additional bureaucracy but a normal part of the underwriting procedure that protects you and the lender.

Understanding why the lenders need this document as part of the divorce mortgage loan process will allow you to get everything ready ahead of time for the application and avoid unnecessary delays in getting your new home loan. We’ll cover the basics here, but be sure to contact BrickWood Mortgage if you have any questions! 

Why Lenders Require Your Divorce Decree

Confirming Financial Obligations

Your divorce decree contains important information about your ongoing financial commitments that have a direct impact on your ability to repay a mortgage. Lenders need to be able to see the whole picture of your monthly obligations, including court-ordered payments that your initial application did not capture.

Child support and spousal support are significant monthly payments that affect your debt-to-income ratio – a big factor in mortgage approval. Even if you revealed these payments upon application, the lenders must verify the actual term and amounts through official court documentation. Lenders might also consider a mortgage release of liability for a divorce, which leads to our next point. 

Evaluating Property Division

The divorce agreement details how the marital assets were settled, which informs the lenders of your new financial situation. If you were awarded real property ownership in the settlement, this can favorably affect your net worth and ability to make a down payment. On the other hand, if you are also liable for your previous spouse’s credit accounts incurred during the marriage, the lenders must take these liabilities into consideration.

Property division also determines if you retain any ongoing ownership stake in your old marital residence. That’s especially significant if you’re still on the old mortgage, since it impacts your total debt load.

Calculating Spousal Support and Alimony

Alimony payments work both ways in mortgage underwriting. If you’re paying alimony, it reduces your income available to make mortgage payments. However, if you’re receiving alimony, it can make your mortgage application stronger by providing additional qualifying income.

Lenders typically require that alimony payments continue for at least three years from the application date to be considered stable income. Your divorce decree provides the official timeline and payment schedules that lenders use in making this determination.

Potential Issues and How to Resolve Them

Unclear or Ambiguous Language

Divorce orders occasionally contain vague terminology that does not make it simple for lenders to establish specific financial obligations. Terms like “reasonable expenses” or “as needed” do not provide the specific dollar amounts underwriters require for calculations.

If your order has unclear terms, you might have to go back to court with your lawyer to get a clarifying order that includes definite payment amounts and timelines.

Unresolved Property Disputes

Divorce decrees sometimes leave certain property questions open or to be determined at a later time. These loose ends cause problems for lenders who have to consider your overall financial picture.

You’ll likely need to resolve these disputes or obtain additional court documents before your mortgage process can move forward. While this may delay the process, it clears these issues out of the way and prevents complications further down the road.

Non-Compliance with the Decree

If your ex-spouse is not making court-ordered support, this creates problems with your mortgage application. Delinquent alimony or child support payments that you were counting as qualifying income can cancel your loan approval.

Report all instances of non-compliance and try to seek legal aid in an attempt to get the court order enforced. You can also be required to redo your mortgage application to show only the income that you are able to successfully document.

Moving Forward with Confidence

Even though filing your divorce decree might seem like reopening old wounds, just keep in mind that this requirement is for your financial well-being. Lenders need to verify you’ll be able to handle your new mortgage payment in addition to your other commitments.

Get all of your divorce-related paperwork together early in the mortgage shopping process, and try to work with a broker like BrickWood Mortgage who has experience with divorced borrowers’ special circumstances. Don’t be afraid to speak to us if you have any divorce and mortgage questions or want to find the best mortgage lender in South Carolina.