How do alimony or child support payments affect your ability to qualify for a mortgage?
If you are required to pay alimony, child support or similar payments -- also known as maintenance payments -- according to a court order or legal document such as a divorce or separation agreement, this monthly expense affects the mortgage you qualify for.
For child support and maintenance payments, the expense is included as debt in your debt-to-income ratio when you apply for a mortgage. In short the payments are treated like any other debt such as a credit card or car, student or personal loan.
The higher your monthly expense, the lower the mortgage you qualify for. If your debt payments are too high, you may not get approved for the loan you want.
For example, if you pay $1,000 in monthly child support that means you can spend $1,000 less on your monthly mortgage payment, which reduces the loan you can afford. This is why counting child support and maintenance payments as debt can significantly limit the mortgage you are eligible for.
Alimony payments are also included in your debt-to-income ratio but they are treated differently. Lenders have the option to either subtract the alimony payment from your monthly gross income or include the payment as debt to calculate your debt-to-income ratio.
Use ourMORTGAGE QUALIFICATION CALCULATORto determine the mortgage you can afford including child support or alimony payments
The lender has discretion to choose the option that is most beneficial for the applicant, which in most cases means applying the method that enables you to afford a higher loan amount. As illustrated by the example below, subtracting the alimony expense from your income usually enables you to qualify for a much higher mortgage amount as compared to adding the alimony payment to your monthly debt expense.
Example: How Alimony Payment Affect the Mortgage You Qualify For
Assumptions
30 Year Fixed Rate Mortgage
Mortgage Rate: 3.500%Â
Monthly Gross Income: $5,000
Monthly Debt Expense: $1,000
Monthly Alimony Payment: $800
Method 1: Alimony Subtracted from Gross Income
Monthly Gross Income: $5,000
(-) Monthly Alimony Payment: $800
(=) Income Less Alimony: $4,200
Monthly Debt Expense: $1,000
Mortgage Amount: $194,000
Alimony Added to Monthly Debt Expense
Monthly Gross Income: $5,000
Monthly Debt Expense: $1,000
(+) Monthly Alimony Payment: $800
(=) Monthly Debt Plus Alimony: $1,800
Mortgage Amount: $124,000
This example demonstrates why it is important to work with your lender to apply the debt-to-income calculation method that works best for you if you make alimony payments. We should also reiterate that the option to subtract a payment from your income or include it in your debt only applies to alimony and not child support or other payments.
The table below show mortgage terms for leading lenders in your area. We recommend that you contact multiple lenders to confirm the loan you qualify for. Shopping lenders is also the best way to save money on your mortgage.
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Another common question is if it is possible to exclude child support or alimony payments when you apply for a mortgage? The only circumstances under which child support or alimony can be excluded from your mortgage application are if the payments are voluntary or if you have less than eleven months of payments remaining.
The final point to highlight is that you are required to provide a copy of your divorce or separation agreement or other legal document that specifies the terms of your child support or alimony when you apply for the loan. The lender uses this information to confirm your monthly obligation and to determine how the payment should be factored in to your application.
Sources
"B3-6-05, Alimony/Child Support/Separate Maintenance Payments." Selling Guide: Fannie Mae Single Family. Fannie Mae, February 5 2020. Web.
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