Are Alimony, Child Support, or Separate Maintenance Considered Income When Buying a Home?
If you’ve been through a divorce or separation recently, you might wonder whether you can use various types of support payments to qualify for a home loan.
The answer is yes: you can use alimony, child support, and separate maintenance as income when buying a home. Here’s what you need to know.
Summary
- Alimony, child support, and separate maintenance can count as qualifying income if they meet specific requirements.
- Lenders require a legal agreement and proof of six months of full, on-time payments to accept support income.
- Support for children must continue for at least three more years to be counted toward income.
- Non-taxable support payments may be increased by 15-25% to boost qualifying income.
- The receiving party can choose not to disclose support income, while the paying party must disclose payments as a debt.
Read on for more details.
Alimony, Child Support, and Separate Maintenance Mortgage Requirements
If you receive alimony (spousal maintenance), child support, or separate maintenance, it may help you qualify for a mortgage.
Lenders can consider these payments as steady income under the right circumstances.
First and perhaps most important, the payment terms must be detailed in a legal agreement. You must also show that you have received full, on-time payments for the past six months.
This can be where things often fall apart when using support payments for a mortgage. Lenders need to prove the income is steady and reliable. The only way to make a case for future reliability is to look at the past.
Unfortunately, your former spouse can derail your homebuying hopes by sending irregular or partial payments. Sadly, non-payment of support is too common for lenders to take a legal document at face value.
Here’s a summary of the documentation needed to use support payments to qualify.
Divorce decree, separation agreement, or other legal document detailing the support amount and how long it will be received
The portion of state law that requires alimony, child support, or separate maintenance and conditions under which it must be paid
All supported children’s ages (typically found in the divorce decree) to ensure payments will continue for three years
Proof of full, regular payments for six months
With the right documents, you can add monthly support to your qualifying income to help you get approved.
What if the Divorce Isn’t Final?
It could be difficult to get a mortgage before a divorce is final. Temporary support amounts could change. Also, you may not have six months of alimony or child support receipt.
In these cases, you may have to wait for a final divorce decree, receive six months of payments, and then apply for the mortgage.
Still, it’s worth talking to a lender ahead of time to ensure that you are collecting the right documentation for your loan application.
Recent Divorce or Separation
Using support or maintenance payments to qualify for a mortgage with a recent divorce or separation could be difficult.
As mentioned, you must document six months of full, on-time payments. Waiting until your sixth payment to apply could be the best way to increase your chances of approval.
Child Support for Older Children
Child support that ends within three years of the loan application can’t be used to qualify.
The lender will review each child’s age. If the child turns 18 within three years, child support cannot be used.
For example, you have two children, ages 14 and 17, each receiving $500 monthly in child support. All payments were full and on time.
Your qualifying amount is $500 monthly since one child’s support will end in one year when they turn 18.
“Grossing Up” Non-Taxable Support Income
The lender might be able to “gross up” any support income that is not taxable. This is when the lender can use 15-25% more than the face value of the support to account for it not being taxed.
This can give you that extra boost you may need to qualify for more home.
Read our article on grossing up income and how it can help you qualify.
Receiving Party Does Not Have To Disclose Support Payments; Paying Party Does
Keep in mind that you never have to disclose receipt of income from a divorce or separation. The lender never has to know about it unless you want them to.
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. In this way, support obligations can make it significantly harder to qualify if you owe child support, alimony, or other types of maintenance.
See if Support Payments Can Help You Qualify
If you’ve struggled to qualify for a home loan in the past, and didn’t use support income to qualify, it’s worth applying again.
While the circumstances that led to the payments are never desirable, one silver lining is that the extra income can help you get approved when buying or refinancing a home.
