Alimony, spousal support, maintenance, child support, and other support payments structured during divorce proceedings come in various forms and creative solutions. Although the divorce team may successfully structure support orders that satisfy both parties, how the paying spouse makes these payments afterward can negatively impact the receiving spouse's ability to secure mortgage financing.
Three Common Issues That Can Disqualify Support Income for Mortgage Financing:
- Meeting the Consistency and Stability Tests for Mortgage Financing
- Not Paying Support Directly to the Receiving Spouse
- Reconciling Support Payments with Outstanding Debts and Other Agreements
Consistency and Stability Tests for Mortgage Financing
To use support income as qualified income for mortgage financing, the basic rule is the 6/36 rule. For spousal or child support to qualify, typically, six months of proof of receipt and 36 months of continuance AFTER the loan closes are required. (Note: Government loans may only require three months' receipt.)
Problems arise when spousal support is ordered for only three years. By the time six months of payment receipts are available, the three-year continuance may no longer be met, disqualifying the income.
Another hurdle is meeting documentation and receipt guidelines. Support income must meet standards for consistency and stability. Support must be paid as ordered. If Spouse A must pay $1,000 in spousal support to Spouse B by the 5th of every month but pays varying amounts at different times, this inconsistency disqualifies the income.
For example, support payments from a paying spouse with fluctuating income can cause consistency issues. Involving a Certified Divorce Lending Professional (CDLP®) during the divorce mortgage planning process can help avoid this common mistake by setting proper expectations.
Direct Payment of Support
Sometimes, a former spouse may transfer funds to a joint account, from which the receiving spouse moves the money out. This scenario effectively means the receiving spouse is paying themselves support, making the income unusable for mortgage qualification.
Both spouses must understand how support payments are made and received to avoid negative impacts on mortgage financing.
Reconciling Support Payments with Debts
A common issue arises when one spouse is required to pay monthly support while both are responsible for shared expenses, such as child medical costs. Reconciling support payments with these expenses can complicate qualification.
For instance, if a husband is ordered to pay $9,500 in monthly support but uses part of this to cover the mortgage, utilities, and medical expenses, the income received by the wife may be disqualified due to inconsistency. It is cleaner to pay the total support amount ordered and have the receiving spouse pay the bills directly.
The Role of a Certified Divorce Lending Professional (CDLP®)
Since 2014, Certified Divorce Lending Professionals (CDLP®) with the Divorce Lending Association have been helping divorcing homeowners make informed decisions about their home equity solutions. Divorce Mortgage Planning offers a holistic approach to evaluating mortgage options within the overall financial objectives related to divorce.
Incorporating divorce mortgage planning into the settlement process helps identify possible solutions and assists both parties in letting go of counterproductive positions and emotions. A CDLP® can help assess possibilities, resources, and answers regarding the marital home, other real property, and mortgage financing opportunities.
Benefits of Working with a CDLP®
A successful divorce settlement results from effective communication and strategic negotiations, ensuring both parties emerge whole or on the road to recovery. Working together as a team and integrating divorce mortgage planning into the settlement cycle with a Certified Divorce Lending Professional leads to better solutions and outcomes for the divorcing couple.
Divorce Mortgage Planning is a comprehensive approach to evaluating mortgage options within the context of overall financial objectives as they relate to divorce. Working directly with the divorce team, a CDLP® understands the intersection of divorce and family law, financial and tax planning, real property, and mortgage financing. The role of the CDLP® is to integrate the selected mortgage into long- and short-term financial and investment goals, helping to minimize taxes, interest expenses, and maximize cash flow.
Early Involvement of a CDLP®
Involving a Certified Divorce Lending Professional (CDLP®) early in the divorce settlement process can set the stage for successful mortgage financing in the future.
Note: This article is for informational purposes only and does not provide legal or tax advice. Contact an attorney or tax professional for legal and tax advice. Interest rates and fees are estimates provided for informational purposes and are subject to market changes. This is not a commitment to lend. Rates change daily—call for current quotations. The information in this newsletter is prepared by or purchased from an independent third party and is distributed for consumer education purposes.
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