Buying a Home if You’re Legally Separated or Divorced
If you’ve been through a separation or a divorce, a fresh start comes with new factors to consider when buying a home. Listed below is the information you’ll need to provide when applying for a mortgage.
How are Alimony and Child Support Calculated?
Alimony and child support are calculated based on the information set forth in a legally binding agreement, such as a Property Settlement Agreement (PSA), Marital Separation Agreement (MSA), or Child Support Order.
It’s important to note that volunteer child support payments are not included in your mortgage application unless they are mandated by a legal agreement. Lenders need to verify that the income is steady and permanent, and unfortunately, volunteer payments do not meet this requirement.
How Long Do I Need to be Collecting Alimony and/or Child Support for it to Count as Income?
You will need to have received alimony and/or child support income for at least six months prior to submitting your loan application. This income will need to be confirmed by your bank statements, cancelled checks, or other documentation.
The payments you have received must be paid in full on a regular basis. If the payments were partial or inconsistent, the alimony and/or child support income will not be factored into your income.
VA loans only require three months of full, consistent alimony and/or child support payments.
How Many Years into the Future Should I Have Left to Collect Alimony and/or Child Support for it to Count as Income?
After closing, your alimony and/or child support payments must continue to be received for at least 36 months to be used for qualifying purposes.
If your child is over the age of 15, the use of child support to qualify is less likely because of this requirement. Once your child turns 18, they are seen as independent, even if they intend to attend college.
What Documentation Do I Need to Provide?
Necessary documentation may include the following:
- Copy of the Fully Executed Divorce Decree
- Copy of the Fully Executed Property Settlement Agreement (PSA) or Marital Separation Agreement (MSA)
- Copy of any Child Support Orders and/or Addenda to the PSA/MSA agreement
- If you are receiving alimony and/or child support, you will need to provide proof of receipt of the agreed amount for the 6 months preceding the NOTE Date
If a portion of your alimony and/or child support income is derived from a percentage or other calculation of a variable income from the Obligor, additional documentation may be required. This may include written verification of employment confirming this income was received by the Obligor the current and previous two years.
I Am Paying Alimony and/or Child Support, How Does This Affect My Debt-to-Income Ratio?
If you are the Obligor and paying alimony, alimony is either listed as a deduction from gross monthly income, or as a debt or liability. This will be dependent on the type of loan and if your divorce took place prior to January 1, 2019.
Child support is always counted as a debt or liability for qualifying purposes.
If your spousal or child support payments will be ending soon, you may be able to have the payments excluded from your debt-to-income ratio by providing proper documentation.
Closing Thoughts
Please speak to a mortgage professional prior to consummating your Property Settlement Agreement (PSA) to confirm the terms set forth in the agreement comply with standard mortgage underwriting guidelines.