Separation or divorce is tough, and when kids are involved, things can get even trickier. Now, throw in the challenge of getting a home loan when you're getting alimony or child support. Let's break this down and look at a type of home loan called a Fannie Mae conventional loan. These are great loans to consider for just about any situation, but especially after a divorce.
What's a Fannie Mae Conventional Loan?
Think of Fannie Mae as the owner of the home loan. They will be the company that ultimately agrees to purchase your loan for secondary market purposes. There are other types too, like FHA, VA, and USDA. But each of these will handle alimony and child support money differently. That's where it can get a bit confusing and why we will only concentrate on Fannie Mae Conventional Loans today.
How Fannie Mae Looks at Your Income
When you're trying to get this type of loan, they look at:
How long you'll continue to receive the money: You need papers, like a divorce paper, that show you'll continue receiving the child support or alimony. Sometimes, local laws can also be proof if you don’t have a document to prove continuation. But keep in mind you will still need to prove receipt of the funds for the documents / laws to be valid.
Your past payments: They want to see you've gotten your child support or alimony for at least six months. You can show this with bank statements or checks.
Income Calculation: Talk to someone who knows about taxes to see if you need to pay taxes on your alimony or child support. If you don't pay taxes on it then you may be able to “Gross up” the income! This means you may be able to count a qualifying income higher than your actually income depending the tax percentage you paid the previous year.
Working with a Smart Loan Person
It's super important to have someone who knows the separate guidelines when computing income for “nontaxable income”. A loan officer that is not knowledgeable or at least knows where to find the knowledge may miss key factors in computing your income. Each of the programs mentioned earlier will have varying calculations and one may support your needs more than another. Knowing the rules for all the guidelines is essential to providing you the best support.
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How Divorce Changes Things
Getting a divorce can shake up your plans for homeownership. With separating of assets and changing of your financial situation, getting a new house might seem out of reach. Plus, alimony and child support can make things even more confusing when it comes to calculating future incomes.
Alimony and Getting a Loan
Alimony is a set amount of funds one spouse gives the other as support. Typically known as spousal support, this money comes from the higher earning spouse and goes to the lower earner to offset the difference created from the divorce. It’s important to note not all divorces will result in either spouse receiving alimony.
To count alimony when getting a home loan, you need:
Documents that show the payment details. (Amount, Length and Ending terms)
Proof you’ve gotten alimony for six months.
Proof you’ll keep getting it for at least three more years.
Child Support and Getting a Loan
Child support, like alimony, are funds given to help with child expenses. You can count it when getting a loan if you have:
Documents detailing the payment terms of child support.
Proof you have received it for at least six months.
Proof you will continue receiving child support for at least three more years.
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Tips for Getting Your Loan with Alimony or Child Support
Be organized: Keep all your documents showing a history of child support and alimony. Any documents that go over the terms and agreements of the reported income.
Keep your credit good: Pay bills on time, keep credit card utilization low, create a lengthy history of credit and keep track of your credit score. Knowing what affects your credit score and how to keep it in good standing will prove worthwhile.
Plan for money changes: Divorces can be difficult emotionally and financially. Establishing a plan for making future expenses will help you navigate the changes a divorce may bring.
Look at all loan choices: Keep in mind every ones situation is different and the loan program that worked best for your friend, family member or whoever… may not be the best plan for your situation. Different loans have different rules. Check them all out to see which one fits your situation best.
Find a the right loan officer: This person will be your guide, so find someone who knows about alimony and child support. This person must have the knowledge and/or ability to find the correct loan program for your needs.
In Conclusion
It might feel tricky to get a home loan when you have child support or alimony. But if you stay on top of things, have a good credit score, and find a great loan guide, you'll be closer to getting that home. And if you're ever unsure, don't be afraid to start asking questions early in the process. It doesn’t matter if you are a year or 2 years away from purchasing a home, It’s always best to understand your own situation and how it will affect your options for buying a home. Always aim for the best choice for your future!
