New Mortgage Lending Guidelines Regarding Alimony/Child Support Obligations

October 5, 2017

Let's face it, getting a mortgage isn't easy no matter who you are or what you make.  Until recently when applying for a mortgage after a divorce there was only one way to look at monthly Alimony and/or child supports payments. It was all dependent on which side of the transfer you were sitting on - the giving or the receiving end.  If you were the one paying, the Bank saw the monthly obligation as a debt.  If you were the one receiving, the Bank viewed that monthly amount as income. 

 

For this purpose, let’s pretend you are the one paying.  The bank would review your monthly paychecks, consider any additional annual compensation and determine a monthly income.   Then, your monthly debts as reported on your credit report and per your divorce decree (alimony/child support) would be your monthly debt.  This would determine your ability to repay and your debt-to-income ratio and thus “qualify” for a mortgage.

 

To illustrate, let’s do some simple math….

 

Monthly income (base salary):                                  $20,000

Annual bonus income broken down monthly:           $8,500

TOTAL MONTHLY INCOME per Bank:                        $27,500

 

Alimony and/or Child support obligations:              $10,000

Monthly debts as per credit report:                            $8,000

TOTAL MONTHLY DEBTS per Bank:                          $18,000

Current debt to income ratio                                       65.45%

 

The bank would NOT give you a loan if your debt-to-income level was this high.  That means, you can’t buy another home or refinance the one you are currently living in. How frustrating! Yesterday we found some relief and finally, some common sense once again applied to the world of mortgages.  I am thrilled to announce that as a Mortgage professional who has been at this for the last 16 years, there is a new way to look at this monthly obligation.  

 

For mortgage loans on new home purchases or current home refinances with a balance at or below the maximum conforming loan limits* alimony and/or child support obligations are viewed no longer as a monthly expense.  These payments are finally being treated the way they should be – as a reduction of income, not a debt.    

 

See the same example shown above with the new program rules applied.

 

Monthly income (base salary):                                   $20,000

Annual bonus income broken down monthly:            $8,500

Alimony and/or Child support obligations:               $10,000

TOTAL MONTHLY INCOME per Bank:                         $17,500

 

Monthly debts as per credit report:                             $8,000

TOTAL MONTHLY DEBTS per Bank:                             $8,000

Current debt to income ratio                                        45.71%

 

The bank WOULD give you a loan based on this debt-to-income ratio.  There are other factors of course the bank will consider during the underwriting process and the loan limits are firm.  But this is the BIGGEST news that is a benefit to the consumer in a very long time. Contact me today to learn more.  Contact me for further details and to get started.

 

*Maximum conforming loan limit in Fairfield County, CT is $601,450.    All other counties in CT maximum loan limit is $424,100.  Other states vary significantly.  To learn more about your county or state loan limits, contact me directly.

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