A reader got in touch with us to ask a question about how a participating FHA lender will view child support payments. “My significant other and I want to apply for a house loan together. He technically still pays me child support, but it will end once we own a house together. Can we still count that as part of my income for a home loan? And/or does that effect his income for the loan at all?”
There are a variety of factors that could influence the answer to this question. One is state law. Does the borrower live in a community property state? Is the couple legally married and thus subject to such laws where applicable? Does other state law govern how child support and/or alimony can be handled in a line of credit transaction?
Those are important factors to keep in mind. All that said, FHA loan rules do have a very specific set of guidelines for the lender in cases where alimony, child support, and other court-ordered payments are to be handled when it comes to income.
The borrower who receives child support is required to show documentation of that income if it is to be counted in the borrower’s debt-to-income ratio. FHA loan rules in HUD 4000.1 state:
“The Mortgagee must obtain a fully executed copy of the Borrowers final divorce decree, legal separation agreement, court order, or voluntary payment agreement with documented receipt.”
Furthermore, “When using a final divorce decree, legal separation agreement or court order, the Mortgagee must obtain evidence of receipt using deposits on bank statements; canceled checks; or documentation from the child support agency for the most recent three months that supports the amount used in qualifying. The Mortgagee must document the voluntary payment agreement with 12 months of cancelled checks, deposit slips, or tax returns.”
But the crux of the matter, for the purpose of answering the reader question, comes in the very next paragraph in this section of HUD 4000.1:
“The Mortgagee must provide evidence that the claimed income will continue for at least three years. The Mortgagee may use the front and pertinent pages of the divorce decree/settlement agreement and/or court order showing the financial details.”
So, based on the information given in the reader question about the child support payments being stopped once the borrower and partner move in together would mean the child support does not meet the “three year” criteria for being likely to continue. That means the lender can’t count the payments as verifiable income for the purpose of determining the borrower’s ability to afford the mortgage loan.