Alimony And Your Mortgage: How To Qualify

At first glance, it might not seem like alimony payments and mortgage qualification have anything to do with one another. However, you can actually use alimony payments as an income stream when applying for a mortgage to help you secure a home loan.

On the other hand, if you currently pay alimony to an ex-spouse, your lender considers these payments to be debt. It’s important to know how to get a mortgage when alimony payments are a part of the equation.

Can Alimony Help You Qualify For A Mortgage?

You’ll need to submit proof of all of your income streams when you apply for a mortgage, and lenders consider alimony checks to be a valid source of income. Alimony can boost your qualifying income and can, therefore, convince lenders to extend you a larger mortgage loan.

Alimony Vs. Child Support

Keep in mind that alimony payments are different from child support payments. Alimony, which is sometimes referred to in court documents as spousal support or a spousal maintenance payment, is a payment from one spouse to another that provides support following a divorce.

Courts look at the length of the marriage, the earning power of both spouses and the reason for divorce when they determine who pays alimony. You don’t need to have any children to receive or pay alimony. You might pay alimony for as little as a few months or for years, depending on your state’s laws and the length of your marriage as well as whatever agreement you might have in place with your ex-spouse.

Disclosing Child Support On A Mortgage Application

Child support is a court-ordered payment that one parent pays to another parent after they separate for the caretaking of their child. The parent who has primary custody of the child is usually the one who receives child support payments, though joint custody can complicate this arrangement. Child support is usually paid out until the child turns 18 years old.

It’s possible to receive both alimony and child support payments simultaneously if your ex-spouse is a legal parent of your child.

When To List Child Support As Income

You can list both your child support payments and your alimony payments as streams of income when you apply for a mortgage as long as you meet a few conditions. First, you need to have a documented history that your ex-spouse makes their payments on time for a period of up to 6 months. If your ex-spouse doesn’t make their payments, your mortgage lender won’t consider this a part of your income, even if your ex-spouse is legally required to make the payments.

You can only count alimony as income if you have a documented history that your ex-spouse has paid alimony for up to 6 months and owes at least 3 more years of alimony payments. Child support also has similar limitations.

FHA Child Support Income

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.

When Child Support May Not Be Considered

If you receive child support payments and your child is turning 18 next month, your lender likely won’t be allowed to count it as income. Your lender may also not consider your payments in your income calculation if your alimony or child support is in jeopardy. For example, if your ex-spouse has an outstanding petition to cut off payments, it may not be considered.

When You’re The One Paying Alimony

Are you the one paying alimony or child support? If so, it could affect your mortgage prospects. Lenders consider alimony and child support to be outstanding debts. When evaluating your mortgage application, lenders look at something called your debt-to-income (DTI) ratio. This percentage explains how much of your monthly gross income goes toward paying off recurring debt.

You can calculate your DTI ratio by dividing all of your monthly debts by your total monthly income.

Example DTI Calculation

For example, let’s say that your monthly bills include a car payment ($100), rent ($800), a student loan payment ($200) and a minimum required credit card payment ($50). Let’s also say that you earn $6,000 a month before taxes.

To find your DTI ratio, you would divide your total debt amount ($100 + $800 + $200 + $50 = $1,150) by your total gross monthly income ($6,000) and multiply that number by 100. In this example, your DTI ratio would be about 19.2%.

In the eyes of a mortgage lender, the lower your DTI, the better. It’s best to keep your DTI at 43% or under when you apply for a mortgage. If child support and alimony push your DTI past 43%, you might have a harder time getting favorable terms or getting a loan at all. You’ll have to work on decreasing your recurring debt before applying for a mortgage.

Documents For Mortgage Qualification Despite Alimony

There are ways that a borrower can make up for dents in your income report that are due to child support or alimony payments. Don’t stop making your payments just because you’re ready to buy a home. Instead, gather documents that could help you qualify.

Copies Of Your Debts

Keep copies of receipts from all of your monthly expenses, including rent, utilities, credit card minimum payments, child support and alimony payments that you pay out or take in along with other debts such as student and auto loans.

W-2 Tax Forms From The Last 2 Years

Mortgage lenders usually require at least 2 years of W-2s from your employers. If you have more than one job, bring W-2s from all of your jobs from the last 2 years.

Past 2 Years Of Tax Documents

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. Most lenders won’t lend to you if you haven’t been self-employed for at least 2 years.

Documentation Of Any Other Income Sources

If you have any other income sources like a pension, retirement income, survivor’s benefit, regular commissions, overtime from your job or annual bonuses, you can count it toward your income as long as you can document it.

Keep in mind that your income, alimony payments and DTI are only pieces of the overall mortgage application puzzle. Your lender also looks at your credit score and the amount of money you have for a down payment.

The Bottom Line

Alimony can boost your total income and can even result in you qualifying for a larger mortgage. You can list both your child support payments and your alimony payments as streams of income when you apply for a mortgage as long as you have a documented history that your spouse makes their payments on time.

On the other hand, if you’re the one making alimony or child support payments, this counts as recurring debt. It’s a good idea to calculate your DTI and keep it under 43% when you apply for a mortgage. You’ll also want to be sure your credit score is in tip-top shape and that you have enough money for a down payment.

Ready to see if you qualify for a mortgage? Get started on your application today.