Judith Sutton ABR CRS IDS PMN ASP IAHSP SRES GREEN
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Alimony Payments and Mortgages
Alimony counts toward your Mortgage
Alimony and Mortgages
After a divorce, one member of the former couple might have to make alimony payments to the other. These payments are a way for the divorcing spouse with a lower income to maintain the same standard of living that he or she enjoyed during the marriage.
These payments come on a regular schedule, usually monthly. Because of this, mortgage lenders consider alimony payments to be regular, long-term income.
When you are applying for a mortgage, then you can count your alimony payments as part of your gross monthly income.
Why does this matter?
When you apply for a mortgage, your lender will review your gross monthly income — the income you receive each month before taxes are deducted. Lenders want to make sure that your income is high enough to cover your monthly mortgage payments.
What counts as income? You can use your salary, freelance income you've earned on a regular basis, disability payments, rental income, money from a legal settlement, Social Security payments, and royalties. You can also use alimony as income because you receive it on a regular and consistent basis when you are trying to qualify for a mortgage.
Depending on your other income and debts, alimony payments might play a key role in determining how much of a loan you can qualify for. Most lenders want your total monthly debts, including your new mortgage payment, to equal no more than 43% of your gross monthly income.
Maybe your income isn't high enough without alimony payments to boost you past this 43% mark. But once you add in these monthly payments, your income might be high enough so that your monthly debt payments consume only 40% or less of your gross monthly income. In these cases, your alimony payments can make the difference between qualifying for a mortgage and having your application rejected.
That's why you should always include alimony payments as a source of income when you apply for a mortgage.
What if you are the one making alimony payments?
The news isn't as good if you are making alimony payments. That's because these payments are counted as debt by your mortgage lender.
Lenders count any recurring payment as debt; this includes the minimum payments you must make on your credit cards each month, any loan payments you make each month, and any other financial obligations that eat into your savings. That includes alimony payments.
If your alimony payments are high enough, they could push your debt-to-income ratio over that important 43% mark. If this is the case, you'll need to either reduce your other debts or boost your gross monthly income to reduce your debt-to-income ratio.
Not all lenders will reject your loan application if your debt-to-income ratio rises over 43%. But your odds of qualifying for a loan with a lower interest rate are better if you can keep your income higher and your debt levels lower.
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Judy@JudithSutton.com
COLDWELL BANKER...GUIDING PEOPLE HOME SINCE 1906
908 803-0472
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