Before going into the various aspects of using alimony to qualify for a mortgage, let us check what alimony is and its various legal aspects. This is regardless of whether you are the alimony-paying or alimony-receiving party.
What is Alimony
Alimony is payment ordered by a court within a divorce or separation agreement to be paid to a spouse or former spouse. The amount of alimony provides financial support to the spouse with no income at all or lower income. Alimony paid is not inclusive of child support or money for the upkeep of their property.
Alimony is also known as spousal maintenance and may be granted to a husband or wife. The laws in most states in the USA dictate that a divorced couple has the right to maintain the same quality of life they had before divorce. Alimony is a means of financial support to maintain this parity.
If the earning power of the divorced couple is not equal, the lower-earning spouse will receive alimony payments which might be for a temporary period or perpetual. It is common for alimony not to be awarded in the divorce decree where the annual income of the spouses is similar or where the marriage has been recent.
The amount paid as alimony in case of divorce and how long it is to be paid depends mainly upon current and projected incomes for both spouses and how long they have been married.
The point now is whether using alimony after divorce to buy a property is legally admissible and whether it counts for mortgage payments. Though lenders’ rules are clear in this regard, they might be quite complex to understand by the common person.
We at Just Livin Realty have worked with many couples using alimony as mortgage payments and have guided them in this regard. Contact our legal professionals to get insights into alimony mortgageand its various perspectives.
For this post, we will discuss mortgages from alimony both from the alimony-receiving and alimony-paying parties.
Mortgage Conditions for Alimony Receiving Spouse
Can you use alimony as income for a mortgage? This is a very common question that keeps popping up and the answer is simple, yes you can. However, before qualifying alimony as income for a mortgage, lenders typically require borrowers to prove that the receipt of alimony will go on for a substantial period, generally three years or more.
Further, as a borrower receiving alimony, you might have to produce the court documents outlining the terms and conditions and duration of alimony payments. You can also list child support along with alimony payments as income streams for an alimony mortgage provided a few conditions are met.
- You must have a documented history that shows that your spouse makes alimony payments on time, at least for the last 6 months. If your ex-spouse defaults on timely payments, your mortgage lender will not consider this amount as part of your income even if your ex-spouse must legally make the payments. You will be stopped by the lenders from using alimony to qualify for a mortgage.
- Apart from alimony being received regularly for 6 months to be counted as an income stream by lenders, there is another condition here. The alimony payments should continue at least for a further three years.
- Your lenders might also not count your payments as alimony after divorce for a mortgage if they feel that the alimony or child support might be in jeopardy. An example is your ex-spouse having an outstanding petition in court to cut off the payments.
- There are similar limitations for child support to be counted as an income stream for a mortgage. If a lender finds that you receive child support but your 17-year-old has the next birthday coming up next month, do not expect this specific amount to be considered for mortgage repayments.
Divorce financially affects every aspect of your life. Regardless of whether you are paying or receiving alimony, it is necessary to understand how it might affect your eligibility for an alimony mortgage. In such cases Just Livin Realty has you covered. All that you must do is call our professionals and discuss the modalities of navigating this process successfully.
Mortgage Conditions For Alimony Paying Spouse
If you are the one making child support or alimony payments, it can affect your prospects of getting a mortgage. This is because lenders consider both your alimony and child support payments as outstanding debts.
When your mortgage application is evaluated by lenders there is something called the DTI (Debt to Income) ratio that is worked out first. It is a ratio that shows how much of your income goes into paying your outstanding recurring debts.
Let us take an example to illustrate this point. Suppose that you have a car payment, rent, student loan payment, and a credit card payment, the total of which comes to $1000. Now, let us say your income is $6000 before taxes. Your DTI would therefore be $1000 by $6000 multiplied by 100, which is 16.7%.
Lenders keep a benchmark 43% DTI when you apply for a mortgage. You might not get favorable terms or even get a loan if your child support and alimony in case of mortgage pushes the DTI beyond 43%. In that case, you have to work towards reducing your recurring debt to get a mortgage loan.
How do you make up for a deficit in your income and debt ratio that is due to alimony payments? You should not stop making the payments just because you want to buy a house. Instead, be upfront, get your paperwork in order, and approach your lender with the following documents.
- Proof of your monthly expenses: Keep copies of all your monthly expenses such as rent, utilities, credit card payments, child support and alimony, and auto and student loans.
- 2 years of W-2 tax forms: Get at least 2 years of W-2 forms from your employers as required by lenders. If you have more than one job, a W-2 for 2 years is required from all your employers.
- 2 years of tax documents: To verify your income, mortgage lenders generally ask borrowers to produce 2 years of tax returns, more so if you are a contractor or self-employed. Mortgage lenders do not sanction housing loans if you have not been self-employed for at least 2 years.
- Proof of child support and/or alimony: Make copies of all checks of payments made as well as bank statements to back them up for at least 6 months.
- Documents of any other income: For other income apart from that reflected in W-2, document the sources. These can be annual bonuses, pension, or overtime from your job.
These pointers are just examples and your lender can ask for other proof of income and expenses before sanctioning a loan if you are paying alimony in case of a divorce.
For more details contact divorce attorneys at Just Livin Realty.