Alimony and mortgage qualification: How spousal support affects home loans

The mental and emotional impacts of divorce are well understood. One thing that’s often overlooked is how much divorce impacts someone’s financial picture, especially as one or both spouses may be looking for new homes or to refinance to remove an ex-spouse from the mortgage.

Does alimony count as income for a mortgage? Does child support factor in? Yes, alimony and child support can count as income or debt during mortgage qualification, depending on whether you're receiving or paying.

Key takeaways:

• Alimony and child support can help — or hurt — your loan approval.
• Support payments may count as income if they’re consistent.
• Paying support lowers your borrowing power due to added debt.

Understanding alimony and child support

Before we get to how they impact your mortgage, let’s go over the basics of alimony and child support with a quick chart. None of this is intended to be legal advice. You should consult your attorney and state law for specifics.

Can alimony help you qualify for a mortgage?

Generally, you’re able to include alimony you receive as income for a mortgage if it follows the 6/36 rule: You must have received it consistently for at least 6 months prior to applying, and it has to be expected to continue for 36 months after applying. FHA and VA have a rule stating that 3 months are long enough to establish consistency.

In addition to evidence of payments, you need to show a court order typically, whether it’s your divorce decree or separation agreement. The reasoning for both this and the receipt of payments evidence is that both alimony and child support payments are often missed.

You may be able to qualify with voluntary alimony or child support payments depending on the lender and the loan, but you might have to show more payments to prove consistency. For example, FHA requires 12 months.

Impact of alimony on debt-to-income ratio (DTI)

If you make voluntary alimony payments, these may or may not be included in your debt-to-income ratio. With conforming loans from Fannie Mae or Freddie Mac, voluntary payments don’t have to be included. FHA, Jumbo Smart, and VA loans require inclusion of voluntary payments generally.

Court-ordered payments typically impact DTI unless you’ve already met your payment obligations under the divorce agreement or you have 10 or fewer payments remaining by the time you close. With alimony, you can choose whether it impacts DTI directly or whether you have the alimony removed from your qualifying income based on math.

To show you the distinction, let’s look at an example. Let’s say you pay alimony to your spouse and you have the following situation:

• Gross monthly income: $6,000
• Monthly debts: $1,000
• Alimony: $800

Let’s first take a look at a scenario where alimony is removed from income:

$6,000 - $800 = $5,200

$1,000 ÷ $5,200 = 0.19 or 19%

Now let’s take a look at what happens when alimony is added to debts:

$1,000 + $800 = $1,800

$1,800 ÷ $6,000 = 0.3 or 30%

In this case, a lender will reduce your income rather than factor the alimony into your DTI.

If you receive the payments, it can only help your DTI because it means more income.

Documentation and proof of income

Whether you’re receiving or paying alimony, the first thing you need is the relevant pages of your divorce decree or other court order. If you’re receiving payments, these can be documented through the following:

• Deposit slips
• Canceled checks
• Court records
• Bank statements
• Online merchant payments

Copies of your debts

Lenders need to understand a client’s debts to calculate DTI, which is necessary to determine the monthly payment they can afford. This is a very standard part of the underwriting process and nothing that should be worrisome.

Lenders verify debts by pulling your credit report. This gives information including credit card balances, auto loans, student loans, and personal loans. Alimony payments usually won’t show up on your credit report unless you’ve been late on your payments.

Income documentation from the last 2 years

Documentation including things like W-2s or 1099s will show your history of employment income to go along with the income received from alimony or child support. You should be able to get these documents from your employers or those you contract with if you can’t find it in your tax software.

Past 2 years of tax documents

Your lender will likely ask for your tax returns for the past 2 years, including all applicable schedules. This gives them a more complete picture of all your income sources, particularly if you’re self-employed or do freelance work. It would also show a history of received alimony or child support. Consistency between documents only strengthens your application.

Documentation of any other income sources

If you have other income sources from things like Social Security benefits, rental income or investment dividends, this also adds to your ability to qualify for the mortgage. Your lender will have their own guidelines regarding how long this needs to continue to be used on your application.

Proof might be in the form of 1099s, lease agreements or Social Security award letters.

The bottom line: Alimony and child support require careful documentation

Alimony and child support can significantly impact a mortgage application, whether your receiving the support or paying it. If you want to use alimony or child support to qualify for a mortgage, you’ll generally want to show 6 months of consecutive payments that continue for at least 3 years after you apply. It’s also easiest to qualify if you can show the clauses in your separation agreement or divorce decree.

Divorce can be complicated, so we recommend seeking professional legal and financial advice on your personal situation. If you feel prepared to look into your mortgage options, see what you qualify for.