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Sometimes people mistakenly believe that alimony or child support can be a source of funding for a mortgage. However, this is not necessarily true. Your alimony or child support payment must meet certain conditions before it can serve as a source of income for a new mortgage or refinancing.
When are alimony and child support considered a source of income for a mortgage?
In order for the alimony or child support you receive to be considered for a mortgage, it must meet the following conditions:
- This must be clearly stated in a divorce decree, separation agreement or divorce agreement.
- There should be clear evidence that you have received maintenance or child support for six months. The evidence should also show that you will continue to receive it for at least 36 months. This is called the six/thirty-six rule.
To prove this, you will need documents such as receipts, bank statements and checks. Note that this rule applies differently to alimony and child support.
Documents required for relief funds to qualify for a mortgage
Before alimony or child support can be considered as a legitimate source of financing for a mortgage, proof of supporting documentation is required. The lack of proper documentation is responsible for the failure of many cases. Documentation must begin as early as possible in the divorce process. Important considerations are:
1. Consistency in payment
“To be eligible for a mortgage, there must be consistent payment of alimony or child support. The partner who pays alimony or child support must pay continuously for six months,” says family lawyer Matthew Dolan.
If the alimony or child support payment is replaced by an invoice or alternative payment, the six-month period may have to start again. To avoid confusion, the stream of alimony and child support payments should not be interrupted and should be kept separate from other payments. This makes the extrapolation easier and clearer.
2. Separate bank accounts
Another condition that alimony or child support must meet is that the accounts of the payer and the recipient must be different. Maintaining a joint account becomes complicated because lenders expect you to pay yourself. If you have a joint account, you will need to provide all possible documents to prove that you are not paying yourself.
Documents required include a divorce decree, a divorce agreement, and the birth certificate(s) of the child(ren). The birth certificate serves as proof that the child is young enough to receive maintenance for at least 36 months after the contract is concluded. In most states the age limit is 18 or 21.
Extrapolation: What it means
Certain income is not taxable, including child support and alimony. The extrapolation converts these non-taxable and therefore net income into higher amounts. When extrapolating, the amounts are inflated to approximate normal taxable income. Nontaxable alimony and child support may be increased by 25 percent for regular loans/mortgages and by 15 percent for Federal Housing Administration loans/mortgages.
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If you have other sources of income besides alimony or child support, you can use them to qualify for a mortgage. However, to ensure you make the right decision every step of the way, it is best to speak with an attorney who is knowledgeable about how child support and alimony work.
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