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Alimony, Child Support and Separate Maintenance--Does it Count as Income?

When you apply for an FHA home loan, you're required to certify your income, offer proof of employment and show that you're a good credit risk with a history of on-time bill payments for at least 12 months. Many people have no trouble with this set of requirements, but some are not sure what to write down when it comes to reporting child support payments, alimony and other income as a result of a separation or divorce. How do you include income from alimony payments and other financial support in your FHA loan application? More importantly, how does the your lender regard such payments?

DOCUMENTATION

The first step in getting many lenders to recognize income from alimony, child support, or maintenance payments as a legitimate source of income is by showing proof that such payments are happening on a regular basis. Many couples who enter divorce proceedings agree to informal child support arrangements or alimony payments; unfortunately the lender is not obligated to recognize such arrangements as a legitimate source of income. In fact, some financial institutions have issued recent guidance that in order for alimony or other payments to be considered as income, there must be a court order or other legal documentation showing that one party is legally obliged to pay the other party. A divorce decree, formal separation or court order is sufficient in most cases.

AMOUNTS

When you apply for an FHA mortgage and list alimony or child support payments as legitimate income, your loan officer will examine the ratio of your other income versus the amount of child support or alimony you receive. Depending on the amount and your lender's policies, certain requirements govern how that income is to be considered.

For example, some lenders stipulate if alimony or child support is 30% of the household income or less, the following standards apply:

The party paying alimony or child support must be obligated in writing to pay.

The payer must have paid for at least half a year before the loan application is filled out.

The payer must be obligated to continue paying for a minimum of three years after closing the sale.

There must be evidence of "stable receipt" of the full amount of alimony or child support for the most current six months prior to applying for the FHA home loan.

When the amount of alimony or child support is greater than 30% of the FHA borrower's income, the rules can change. Some lenders require the following;

The borrower must receive alimony or child support for a full year before applying for the loan.

The payer must be obligated to continue paying for three years after the loan has closed.

There must be evidence of complete, on-time payments for a full year before applying for the home loan.

It's important to remember that in all cases, if you apply for an FHA home mortgage and list maintenance, alimony, or child support, there must be legally binding paperwork acceptable to the FHA that spells out the amount of the payments and their duration. This helps document your actual income and gives the bank and the FHA a way to measure what you are able to reasonably borrow when shopping for an FHA mortgage.

Your financial institution has specific guidelines on these issues--don't assume terms are identical from one bank to another. It's best to ask up front about any sources of income from alimony and child support so you know how to properly budget for your FHA home loan.

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