Divorce and mortgage financing concerns often intersect, particularly when one spouse depends on income awarded from the divorce for mortgage qualification. Understanding how lenders evaluate different income sources and handle joint and contingent liabilities is crucial for helping divorcing clients secure mortgage financing post-decree.
Understanding Income in Divorce Mortgage Financing:
Income vs. Qualifying Income: In divorce situations, various types of income must be considered, such as Employment Income, Alimony/Maintenance Income, Child Support Income, and Property Settlement Note Income. While all these sources are considered “income” by the recipient, not all qualify as “Qualifying Income” for mortgage purposes.
To be considered “Qualifying Income,” specific requirements must be met. Involving a mortgage professional specializing in Divorce Mortgage Lending during the divorce process, rather than post-decree, can help avoid common pitfalls related to income qualification.
Alimony/Maintenance and Child Support as Qualifying Income:
Continuance: For successful homeownership, lenders must be confident that all qualifying income will continue to be received for the foreseeable future. Documentation must show that income will continue for at least three years after the mortgage application date. Check for limitations on payment continuance, such as the age of the children receiving support or the duration of alimony payments.
Stability: To be considered stable, income must be received in full, regularly, and on time for at least six months. Income received for less than six months is deemed unstable and cannot be used for mortgage qualification. Inconsistent or sporadic payments are also unacceptable.
Example: A borrower receives $6,000 monthly from various sources: $2,500 employment income, $1,500 maintenance income, and $2,000 child support. Maintenance income is awarded for three years, and child support continues until the children (ages 5 and 7) turn 18. Despite receiving both maintenance and child support for six months, the maintenance income is not “qualifying income” due to not meeting the three-year continuance requirement.
Avoiding Mortgage Financing Hurdles During Divorce: Working with a divorce mortgage professional during the divorce process can help identify and avoid income qualification issues. This is especially true when dealing with additional income sources such as property settlement notes and asset distribution income, which require stability and continuity layers.
Consult a Certified Divorce Lending Professional (CDLP®): A Certified Divorce Lending Professional’s (CDLP®) knowledge and experience can significantly ease the transition and ensure success for all parties involved. Their expertise in understanding the many ways divorce impacts mortgage financing is invaluable to both the divorce team and divorcing homeowners.
Conclusion: Always work with a Certified Divorce Lending Professional (CDLP®) when dealing with divorce and real estate or mortgage financing. Incorporating Divorce Mortgage Planning into the divorce settlement can help both spouses secure new mortgage financing post-divorce.
Contact a CDLP® Today: For more information, contact a CDLP® to obtain the "Divorcing Your Mortgage Homeowner Workbook," a comprehensive guide to credit, real estate, and mortgage financing during and after divorce.
Disclaimer: This information is for educational purposes only and not intended as legal or tax advice. Consult an attorney or tax professional for specific guidance. Rates and fees are subject to market changes and are provided for informational purposes only. This is not a commitment to lend.
This is for informational purposes only and not to provide legal or tax advice. You should contact an attorney or tax professional to obtain legal and tax advice. Interest rates and fees are estimates provided for informational purposes only and are subject to market changes. This is not a commitment to lend. Rates change daily – call for current quotations.
Copyright 2021 Divorce Lending Association. No portion of this post may be reproduced without the written consent of the Divorce Lending Association.
