Mortgage Confidential: Why lenders want to see your divorce decree
Mortgage expert David Reed invites WalletPop readers to ask him questions about real estate financing. Leave your questions in the comment section of this post.
Who cares that you got rid of that old, beer-drinking, half-shaven unemployed couch potato five years ago? And why exactly would a lender want to look at a copy of your old divorce decree, if you could find one, that is? Do divorced people have higher default rates on mortgages?
Lenders want to see divorce decrees because that's the only way to determine if there are any support payments between the two former lovebirds. Credit reports only show consumer payments such as automobile loans, credit cards and student loans. Alimony payments only show up in divorce papers and if someone has a $1,000 a month support obligation that could seriously affect the ability to make house payments.
But how would a lender even know if you got divorced five years ago? A couple of ways. One, on the loan application there are questions that ask you if you're obligated to pay child support or alimony and also if you've ever obtained credit under any other name. Women who take the husband's last name at marriage then later get divorced will find that their credit report might show different last names. That's always a signal to a lender of a possible divorce in the background. And they'll ask for that decree.
If you're counting on support payments to help qualify for a mortgage then the decree will verify the amounts to be paid and how long they're to continue. Support payments can be used to help qualify for a mortgage if they're to last at least three years from the date of the mortgage application and you can prove that the support payments have been made on time, every time, for the previous 12 months. If the ex-hubby misses a few months every now and then lender won't count the support income.
Finally, if you ever had joint credit with your ex, especially if there's an outstanding mortgage involved, the lender will want to see the divorce decree (signed by the judge) showing who is responsible for the current mortgage. If there is no indication of who is responsible, the lender may count that mortgage payment against you, making it more difficult to qualify for a home loan. Even if you no longer live in the old property.
If this is you, if you're trying to buy a home and have been divorced, start looking for those old divorce papers or call your attorney and get a copy. You just might need that lovely memento.
Real estate finance expert David Reed is president of CD REED Mortgage Bankers in Austin, TX and author of Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You and Mortgages 101: Quick Answers to over 250 Critical Questions About Your Home Loan.