Refinancing a mortgage or purchasing a home after a divorce can be challenging. Knowing some basic requirements will help you know what to expect before applying for a mortgage. But, if you have a down payment of $25,000, your monthly payments may be lowered by roughly $100 or more. Consulting with your attorney, in conjunction with a lender, with your home buying goal in mind is vital to coming out of your divorce ready to purchase a new home for your new beginning. Creative settlement structuring could help a person qualify to purchase a new home. And, even if you do not have an amicable divorce, creative negotiating or creative offers of settlement are key to make sure you ultimately can purchase a new home.
Impact on debt-to-income ratio
However, some lenders will treat the income as secondary income which means that they would only take 50-60% of the maintenance payments into account when deciding how much they could lend. These include how long you will be receiving the payments for and in some cases whether you have a formal agreement in place or not. This does not mean that you cannot purchase a home while paying alimony and child support.
Final Thoughts: Get Approved for FHA Loans with Child Support Payments
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Legal disclaimer
While others may not accept child benefit as income if one applicant earns £50,000 or over – the point at which you need to start paying the High Income Child Benefit Charge. Admittedly, it is not always easy to increase your down payment, and you may have to wait a little longer while you build up your savings. That said, when you consider that a good interest rate can save you tens of thousands of dollars over the life of the mortgage, the time spent is a wise investment. In order to make sure you qualify to purchase a home after your divorce is finalized, it is important to keep your “home buying goal” in mind during settlement discussions or negotiations. Mortgage lenders may require you to bring 2 years of tax returns to verify your income, especially if you’re self-employed or an independent contractor.
Vetrano & Feinman LLC. In my client’s case above, she was receiving a substantial alimony check and was going back to school so when it stopped, she could get a good job and replace that money. Also, if your kids turn a certain age like 18, or whatever you and your ex decided the age was to terminate child support, then it can’t be counted as income if it is within the 3 years.
Documents for mortgage qualification despite alimony
- In order to make sure you qualify to purchase a home after your divorce is finalized, it is important to keep your “home buying goal” in mind during settlement discussions or negotiations.
- Lenders want to see that the income is not only real and consistent, but also likely to continue.
- This is effective because, when you seek a mortgage loan, you are only asking for the difference between the cost of the home and your down payment.
- More lenders are now able to look at a track record of payments being made as adequate evidence.
- The parties may choose to sell the marital home and use their share of the profits as a down payment for their respective new homes.
The higher your monthly expense, the lower the mortgage you qualify for. If your debt payments are too high, you may not get approved for the loan you want. A major factor to consider during the divorce process is how to handle the division of the marital residence. The parties may choose to sell the marital home and use their share of the profits as a down payment for their respective new homes. In the alternative, one party may wish to remain living in the marital home and refinance the mortgage in order to remove the other from the mortgage. The content provided within this website is presented for information purposes only.
But if you’re planning to use child maintenance as income when applying for your mortgage, a broker’s advice is invaluable. To qualify for a home mortgage, lenders look for income, and not all income is created equal. A person receiving a salary or wage as a W-2 has very clear qualifying income. Some people are self-employed, some receive large bonus income, some people have rental income, and some people rely heavily on child and spousal support. The journey to homeownership, especially with the added layer of child support or alimony, might seem daunting at first glance. Yet, with the right preparation and understanding of lender requirements, this form of income can indeed open doors to purchasing your dream home.
- Lenders will also require that these payments continue for at least 36 months (3 years) after the date of closing on the refinance.
- Consulting with your attorney, in conjunction with a lender, with your home buying goal in mind is vital to coming out of your divorce ready to purchase a new home for your new beginning.
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- Lenders have the option to either subtract the alimony payment from your monthly gross income or include the payment as debt to calculate your debt-to-income ratio.
- If the child support hasn’t started yet—like if you just filed for it or it begins in the future—you can’t use it.
- They will document this by using your legal (signed by a judge) separation agreement or divorce decree stating how much is to be paid and for how long.
But it does mean that you will have to be mindful of your debt-to-income ratio and make financial adjustments to increase your mortgage application viability. Child support income can be included in your total income when applying for a mortgage, potentially boosting your borrowing power and making it possible to keep your house. However, it’s essential to provide documentation to verify the consistency and reliability of these payments. This example demonstrates why it is important to work with your lender to apply the debt-to-income calculation method that works best for you if you make alimony payments. We should also reiterate that the option to subtract a payment from your income or include it in your debt only applies to alimony and not child support or other payments. A lender or broker may ask whether income stated in your application comes from alimony, child support, or separate maintenance payments.
Unlike with many lenders of conventional loans, the Federal Housing Administration (FHA) can accept voluntary child support payments as income. Proof of voluntary payments from the past 12 months is required, and it also must continue for at least 3 years. Please note that volunteer child support payments made by a former spouse that are not mandated by a legal agreement or law are not included in your mortgage application. Lenders need to verify that the income is steady and permanent and unfortunately volunteer payments do not meet this requirement. However, the paying party does have to disclose payments when applying for a mortgage. The legally required payment will be treated like a debt and added to debt-to-income ratios.
The key factor is how child support affects your debt-to-income ratio (DTI). If you receive child support, it can boost your qualifying income, making it easier to meet FHA’s DTI requirements. But lenders are becoming increasingly flexible when it comes to child maintenance and mortgage applications.
One such income type is child support, which is viewed differently by Conventional and FHA loan programs. Ideally, people use this strategy in conjunction with paying down their debt for an added boost. But either way, more income will improve your percentage of debt-to-income.