FHA Loan Articles
News, updates, and explanations to keep you informed.
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?
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.
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:
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 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.
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.
- 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.
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.
FHA NEWS and RELATED ARTICLES
When applying for an FHA home loan, some lenders may ask for tax paperwork as part of the application process. Some borrowers may wonder if this is legal, or an acceptable practice for home loans in general.
There are many questions about the official FHA loan rules for occupancy for single-family home loans. According to FHA rules, a borrower must occupy the home purchased with a single-family FHA loan as a personal residence as a condition of loan approval.
After the housing market crisis of the previous decade, many mortgage borrowers found themselves having trouble making their monthly payments. In some cases, borrowers just walked away from the mortgage completely and allowed the home to be foreclosed upo
The FHA has announced it would accept electronic signatures (also known as e-signatures) on several FHA home loan documents. The new policies are found in detail described in FHA Mortgagee Letter 14-03.
Some of your FHA loan closing costs may be financed, and some may--after being negotiated between buyer and seller--be paid by the seller within the boundaries of the FHA loan programís rules. The borrower can also pay some closing costs out of pocket.