June 6, 2023
FHA loan rules permit alimony and child support to be counted as verifiable income for borrowers who receive it and who choose to list it in their income sources.
Like all other sources of income, the rules in HUD 4000.1 state the lender is responsible for verifying the income through documentation such as court agreements or other paperwork.
Receiving this income can help you qualify for a home loan, but what about FHA loan applicants responsible for paying alimony and child support? Does this count against a borrower’s debt ratio?
HUD 4000.1 says yes, lenders must count alimony and child support payments as recurring debts.
The FHA loan rule book gives the following instructions to the lender:
“For Alimony, if the Borrowers income was not reduced by the amount of the monthly alimony obligation in the Mortgagees calculation of the Borrowers gross income, the Mortgagee must verify and include the monthly obligation in its calculation of the Borrowers debt.”
HUD 4000.1 also states child support and maintenance payments “are to be treated as a recurring liability and the Mortgagee must include the monthly obligation in the Borrowers liabilities and debt.”
How does HUD 4000.1 define these payments?
“Alimony, Child Support, and Maintenance are court-ordered or otherwise agreed upon payments.” The presence of the court order is apparently a key factor with this type of financial obligation, and the lender is expected to document it accordingly.
Your lender must ask you for the official signed divorce decree, separation agreement, maintenance agreement, or other applicable legal orders.
“The Mortgagee must also obtain the Borrower’s pay stubs covering no less than 28 consecutive Days to verify whether the Borrower is subject to any order of garnishment relating to the Alimony, Child Support, and Maintenance.”
Furthermore, “For Alimony, if the Borrowers income was not reduced by the amount of the monthly alimony obligation in the Mortgagees calculation of the Borrowers gross income, the Mortgagee must verify and include the monthly obligation in its calculation of the Borrowers debt.”
FHA loan rules state that child support payments is a recurring liability. The lender “must include the monthly obligation in the Borrowers liabilities and debt.”
The loan officer is required to make certain calculations based on the amount of financial liability in this area, calculating the Borrowers monthly obligation from the greater of “the amount shown on the most recent decree or agreement establishing the Borrowers payment obligation; or the monthly amount of the garnishment” according to HUD 4000.1.