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.

Disclosing child support on a mortgage application

If you don’t want the child support payments you received used to qualify, you don’t need to disclose it. While it’s your choice, any additional income, including child support, can help strengthen your mortgage application and increase the loan amount you qualify for. You just have to be able to document the support.

When to list child support as income

Listing child support as income helps you qualify by increasing your usable income. It’s easiest to qualify if you have court-ordered payments that are consistent in nature. Here’s a list of things you need to show:

• You want to show your own legal documentation like a divorce decree, separation agreement, or other court order. If these don’t exist yet, a voluntary agreement between spouses may sometimes be used if signed by both parties. Talk to your lender because some states don’t allow voluntary payments to be used in mortgage qualification.
• Child support needs to continue for at least 3 years. If the documentation doesn’t list and end date, you may need a birth certificate to show the child’s age.
• You need to show consistent payments for at least 6 months for conventional loans backed by Fannie Mae and Freddie Mac. VA allows for as few as 3 months of payments when there’s a court order.
• You need proof of payment that could come in the form of bank statements, canceled checks, deposit slips or statements from online payment services, for example.

FHA child support income

The FHA has a couple of unique rules when it comes to using child support income. Here’s a brief overview:

• If you have court-ordered payments, you can use them as income with as few as 3 months’ receipt.
• If the payments are voluntary, you have to show 12 months of consistent receipt.
• If voluntary payments are irregular, you have to show up to 24 months.

When child support may not be considered

Payments always have to be expected to continue for at least 3 years. In general, payments have to be consistent for 6 months. In instances where payments are more scarce, you’ll have to show more documentation to have any chance of qualifying.

If qualifying with existing child support isn’t an option for you, there are other things you can do to strengthen your application including improving your credit score, paying off debts, or applying with a co-borrower.

When you’re the one paying alimony

Paying alimony doesn’t have to be an insurmountable obstacle to getting a mortgage, but it does have to be factored into your financial picture. As mentioned earlier, your lender can either reduce your income by the amount of your alimony payment or treat the payment as a debt. They’ll do whatever affects your DTI less.

While paying alimony can reduce the amount that you may qualify for when getting a mortgage, there are other things you can do to bolster your qualifications, like reducing debt, improving your credit score, showing additional income and applying with another applicant.

It’s also important to make your alimony payments as scheduled. While state laws vary, there can be negative credit reporting associated with missed payments.

Common challenges and solutions

There are some common pain points that come up when qualifying with alimony or child support. But there are also things you can do to make qualifying easier:

1. Voluntary or informal support arrangements: Although it’s possible to qualify with a voluntary arrangement, you’ll have to show a longer history of receipt in some cases. For your own protection, it’s better to formalize things legally because if you’re receiving the funds, you’ll have a record of what they should be paying. If you’re paying, you’ll have an end date.
   
   
2. Inconsistent payment history: If payments are inconsistent, a lender may not allow you to count on it for mortgage qualification. Aim to show at least 6 months of consistent payments.
   
   
3. Support ending within 3 years: In all cases, the child support or alimony has to have an expectation that it will continue for at least 3 years. If you can’t qualify with this income, you may look at showing other income streams like investments or funds from retirement. You can also work at lessening existing debt or applying with another person.

Tips for applicants

Applying for a mortgage always requires careful planning, but this can be doubly true when you’re trying to make new arrangements after a significant event like a divorce. Here are some basic tips to get started:

• Redo your budget: Divorced couples are often going from two incomes down to one. Because of this, it’s important to re-examine how much you can afford for all line items in your budget, including your home. When it comes to mortgage, we have several calculators that may help.
• Get your credit in order: If you’ve maintained certain credit cards and loans that are only in your own name, you may be in decent shape. Couples who have long relied primarily on joint accounts and loan applications may have to spend some time building up credit in their own name before buying a new home or refinancing an existing one.
• Consult with legal and financial professionals: If you’re going through the divorce or separation process right now, a pro can help you formally set things up in such a way that it will be easier to apply for a mortgage when you’re ready. Legally formalizing payment agreements and setting up separate accounts can be helpful.
• Get documents together early and do it right: You’ll want to gather the relevant pages of your separation agreement or divorce decree. You’ll also need to document 6 months of payments. Try to separate accounts as early as possible. If your spouse pays into a joint account, it looks like they’re paying themselves.

FAQ

Having touched on the basics of alimony and child support stemming from a divorce agreement to qualify for a mortgage, let’s run through some other questions you might have.

Can I use alimony as income if it’s not court-ordered?

Depending on the loan type, voluntary alimony may be allowed, but you may be required to show a longer payment history. It’s easier to qualify with the legal documentation in place. This is also protection for you because there’s recourse if payments aren’t made. If you’re the payer, it gives an end date.

Does a co-signed mortgage affect alimony or child support qualification?

To the extent that a court considers your DTI in the process of making alimony or child support decisions, your portion of the mortgage can be factored into that DTI.

Will my mortgage lender contact my ex-spouse about support payments?

Lenders typically won’t contact your ex-spouse. You just have to be able to show your legal documents and records of consistent payments.

Can I get a mortgage if my alimony payments are ending soon?

Alimony payments ending within 3 years don’t qualify to be used as income toward a home loan. This won’t prevent you from getting a mortgage on its own, but you do need to show other income.

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.