Can you even afford to keep the property?

Divorce attorneys are best suited for structuring Child and Spousal support correctly, usually the last thing on their mind is to make it possible for you to buy a house. Lenders use qualifying income, which is often, vastly different from your taxable income. To maximize your qualifying income, you should talk to an experienced mortgage loan officer as early in the process as possible. 

For many people getting divorced, they will need to count the child and spousal support as income to qualify for refinancing their existing house or purchase a new property.  Mortgage giants, Fannie Mae and Freddie Mac determine the qualifying standards for conforming loans. They both use the 6/36 rule to determine if there is enough stability in the spousal/child support income to use it as “qualifying income”. 

The first half of that equation is concerned with 6 months of documented history of receiving the support payment.  Usually copies of cancelled checks are required, or possibly 6 months of bank statements showing the support being deposited.  The amounts should be the same every month, consistent with the divorce decree or separation agreement. Consistent timing of the support payments, such as on the first of every month, or the first and the 15th of every month.  In the case of inconsistent dollar amounts or sporadic payments, the underwriter will probably not allow this income for qualifying purposes. In the case of a variable payment, commission, overtime or bonus income, it is usually needed to use a two-year history to verify payment.  If the amount increases from one year to the next, a 24-month average would be used.  If the amount declines from year-to-year then only the last year’s amount would be used.  The underwriter may even request documentation showing reasonable expectation of continuance.

The mortgage lender will want to make sure the spousal/child support will continue for at least 3 more years.  The challenge lies in when the parent of the minor child is expected to receive less than 36 months of child support.

An example of this is if the child just celebrated their 16th birthday and if the child support will only continue until their 18th birthday, this is problematic.  Typically the child support will only last for 2 years, and therefore this income will not be used to help this spouse qualify for a mortgage.  There are creative ways to get around this, for example, if the marital settlement agreement is initially written to show that the child support will continue until the child is 20 years old, which would be 4 years. This would cover both the 6-month history and the 36 more months of continuance. An example might have the decree double the term of the support but cut the amount in half.  The same amount will be received, and the lower amount will be able to be used to help qualify for the mortgage. The attorney may need to adjust the percentage of child custody to make this work.

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