A major factor to consider during the divorce process is how to handle the division of the marital residence. The parties may choose to sell the marital home and use their share of the profits as a down payment for their respective new homes. In the alternative, one party may wish to remain living in the marital home and refinance the mortgage in order to remove the other from the mortgage. In either of the above scenarios, many couples going through the divorce process and wishing to purchase a new home will need to think about whether they qualify for a mortgage under their new financial circumstances.
Alimony and child support payments can be used as qualifying income under certain circumstances. Mortgage lenders need to be able to ensure that the payments you receive in the form of alimony or child support are steady and reliable. In general, when determining qualifying income for a loan, lenders require a documented pay history of at least 6 months for child or spousal support. An FHA loan generally requires a documented pay history of 12 months. This is why it is important to have a support order in place. In the event the parties have agreed on an informal support arrangement, it is even more important that the payor spouse does not put their informal support payment into a joint account for the other spouse, as this will not appear as payment from one party to the other, and will not show a prior history of 6 or even 12 months of payments. Lenders will also require that these payments continue for at least 36 months (3 years) after the date of closing on the refinance.
If you plan on applying for a loan using alimony and/or child support as qualifying income, a lender will need to see a formal document that shows that the paying spouse is obligated to make these payments. This document can be a support order, a property settlement agreement, or perhaps a final divorce decree, signed by the parties, outlining the payment amount and the period of time over which payments will occur. Lenders are unlikely to consider either proposed or voluntary support payments as income.
If alimony is not being paid as part of the divorce settlement, but a cash payment is being made to effectuate equitable distribution, then that cash payment could be placed into a trust, so as to annuitize the funds. This way, they can be treated as qualifying income to the recipient, if the trust is being paid out for more than three (3) years from the date of the closing on the refinance or purchase.
The family law attorneys at Vetrano | Vetrano & Feinman can help you determine the best way to handle the division of your marital residence. If you are thinking about either refinancing the marital home to remove your spouse from the mortgage or buying a new home and using alimony or child support as all or part of your qualifying income for the mortgage, we can help you structure the terms of your divorce and settlement agreement to maximize these amounts.
