Lester Freeman
Alimony, or spousal support, is a legal obligation for one spouse to financially support their former spouse after a divorce. It can impact an individual's ability to qualify for a mortgage, as lenders assess a borrower's income to determine their ability to repay a loan. When evaluating a mortgage application, lenders consider alimony and child support payments as outstanding debts or a reduction in gross income, impacting the applicant's debt-to-income (DTI) ratio. To count alimony as income, lenders typically require proof of consistent and timely payments over several months, with expected continuity for a significant period.
| Characteristics | Values |
|---|---|
| Alimony counted as income | Yes, but only if you have a documented history of receiving alimony for at least 6 months and it is likely to continue for a significant period of time. |
| Alimony as a debt | Yes, if you are the one making alimony payments, it counts as a recurring debt. |
| Alimony and child support | Both can be listed as streams of income as long as there is a documented history of timely payments for at least 6 months and they are likely to continue for at least 3 years. |
| Alimony and mortgage qualification | Alimony can impact your debt-to-income (DTI) ratio, which lenders use to determine your ability to repay a loan. A higher DTI ratio may make it more challenging to qualify for a mortgage. |
| Alimony and credit score | Paying alimony won't prevent you from getting a mortgage, but it may impact your credit score. |
| Alimony and tax documents | Lenders typically require at least 2 years of tax documents, preferably showing you are filing separately from your ex-spouse. |
| Alimony and FHA loans | Alimony can be considered as income for FHA loans, but there must be legally binding paperwork detailing the payment amounts and duration. |
| Alimony and Fannie Mae | Fannie Mae offers flexibility, allowing borrowers to count alimony as debt or deduct it from their gross income to optimize their DTI ratio. |
| Alimony and Freddie Mac | Freddie Mac requires that alimony payments be deducted from gross income, which affects the DTI ratio. |
What You'll Learn
Alimony as income
Alimony, or spousal support, is a legal obligation for one spouse to provide financial support to their former spouse after a divorce. It can be counted as income when applying for a mortgage, which may help you qualify for a larger loan. However, lenders typically require borrowers to demonstrate that the alimony payments are likely to continue for a significant period.
To count alimony as income when applying for a mortgage, you must provide evidence of stable receipt of the full amount of alimony for the most current six months before applying for the loan. Some lenders may require up to 12 months of proof. Additionally, the alimony must continue for at least three years after the loan has closed.
To prove alimony income, you will need to provide legal documentation, such as a divorce decree, separation agreement, court order, or documentation that verifies state law mandates the payment. Lenders may also require you to provide recent tax returns, W-2s, and other financial information to verify your income.
It is important to note that not all lenders consider alimony as income. Government-backed loans, like Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) loans, typically allow you to consider alimony as income. However, it is always best to check with your specific lender to understand their requirements and how alimony may impact your mortgage application.
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Alimony as debt
Alimony, also known as spousal support or spousal maintenance, is a legal obligation for one spouse to provide financial support to their former spouse after a divorce. It can affect a divorcee's financial life, including their ability to qualify for a mortgage.
If you are the one paying alimony, it is considered a recurring debt or monthly debt by the lender. It increases your debt obligations and is added to the debt side of your debt-to-income (DTI) ratio, which calculates how much of your monthly gross income goes towards paying off recurring debt. A higher DTI ratio may make it more challenging to qualify for a mortgage, as lenders typically have limits on the DTI ratios they accept. Therefore, it is recommended to keep your DTI under 43% when applying for a mortgage.
On the other hand, if you are receiving alimony, it can be counted as income to qualify for a mortgage. Government-backed loans, such as Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) loans, allow you to consider alimony as income. However, lenders typically require proof of consistent alimony payments and documentation of the terms of the alimony agreement and divorce decree. Additionally, they may require evidence that the payments will continue for a significant period, usually a minimum of three years.
Whether paying or receiving alimony, it is essential to understand how it can impact your debt obligations and income calculations when applying for a mortgage.
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Documenting alimony payments
Whether you are paying or receiving alimony, it is important to keep detailed records of these transactions. Alimony, or spousal support, is a court-ordered payment from one spouse to another after a divorce. It is separate from child support payments and marital property division.
If you are the one paying alimony, it is in your best interest to keep a list of each payment made. This is because alimony payments are considered a recurring debt and can impact your debt-to-income (DTI) ratio, which lenders will use to evaluate your mortgage application. A higher DTI ratio may make it more challenging to qualify for a mortgage. Additionally, if you have to make alimony payments, you may have to pay tax penalties and could even pay your ex-spouse for any undocumented payments.
On the other hand, if you are receiving alimony, it can be counted as income to qualify for a mortgage. However, lenders will typically require you to demonstrate that the alimony payments are likely to continue for a significant period. You will need to provide your lender with the terms of your alimony agreement, along with a copy of your divorce decree or separation agreement. It is also a good idea to keep copies of receipts from all of your monthly expenses, including alimony payments received, to provide proof of income.
Regardless of whether you are paying or receiving alimony, keeping careful records is essential. In messy divorces, one spouse may claim alimony payments were never made or received, and having well-maintained spreadsheets or lists will provide proof that payments were or were not completed.
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Alimony and child support
Alimony as Income
Alimony is a legal obligation for one spouse to provide financial support to their former spouse after a divorce. If you are receiving alimony, it can be counted as income to qualify for a mortgage. Lenders typically require borrowers to demonstrate that the alimony payments are likely to continue for a significant period. Government-backed loans, like Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) loans, allow you to consider alimony as income. To qualify as income, your lender will want to know the amount and how long you’re scheduled to receive payments. You’ll need to provide your lender with the terms of your alimony agreement, along with a copy of your divorce decree or separation agreement.
To get many lenders to recognize income from alimony, you must show proof of regular payments. Lenders require a legal agreement and proof of six months of full, on-time payments to accept alimony as income. Some lenders require proof of payments for a full year before applying for the loan. The alimony must continue for at least three years after the loan has closed.
Alimony as Debt
If you are the one making alimony payments, this counts as recurring debt. Paying alimony can count as a monthly debt and get added to the debt side of your debt-to-income (DTI) ratio. Lenders consider alimony to be outstanding debt. When evaluating your mortgage application, lenders look at your DTI ratio, which is calculated by dividing all of your monthly debts by your total monthly income. A higher DTI ratio may make it more challenging to qualify for a mortgage as lenders typically have limits to the DTI ratios they are willing to accept.
Child Support as Income
Child support can also be counted as income that your lender will take into consideration when reviewing your mortgage application. To qualify as income, child support payments must continue for at least three years. 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 must continue for at least three years.
Child Support as Debt
If you are the one making child support payments, this counts as recurring debt. Child support payments are typically based on parental income and how parents are dividing custody of their children, and they usually end when the child turns 18.
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Alimony and mortgage qualification
Alimony, or spousal support, is a legal obligation for one spouse to provide financial support to their former spouse after a divorce. It can impact a divorcee's ability to qualify for a mortgage, as lenders assess a borrower's income to determine their ability to repay a loan.
If you are receiving alimony, it can be counted as income to qualify for a mortgage. However, lenders typically require proof of consistent, on-time payments for at least six months, and that the payments will continue for a significant period, usually at least three years. Government-backed loans, like Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) loans, also allow you to consider alimony as income.
On the other hand, if you are paying alimony, it can be considered a monthly debt and added to the debt side of your debt-to-income (DTI) ratio, which lenders use to determine your eligibility for a loan. A higher DTI ratio may make it more challenging to qualify for a mortgage, as lenders typically have limits to the DTI ratios they will accept.
Additionally, when applying for a mortgage, lenders may require you to provide various financial documents, including proof of income (W-2s or other documentation if self-employed), tax returns, debt statements, and legal agreements or court orders detailing alimony or child support obligations. It is important to start gathering these documents early in the home-buying process, as it can take time to obtain all the necessary paperwork.
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Frequently asked questions
If you receive alimony, it may be counted as income to qualify for a mortgage. However, lenders typically require proof of consistent payments over a period of 6 months and that payments will continue for a significant period.
Paying alimony is considered a recurring debt and will count towards your debt-to-income (DTI) ratio, which lenders use to determine your eligibility for a loan.
You will need to provide legal documents such as a divorce decree, separation agreement, court order, or documentation that verifies state law mandates the payment. You will also need to provide proof of consistent and on-time payments, such as bank statements or cancelled checks.
Inconsistent or partial payments may impact your ability to qualify for a mortgage, as lenders need to see proof of stable and reliable income.
