Navigating Home Loans with Alimony or Child Support: A Guide to Fannie Mae Conventional Loans

Divorce can be a challenging process, especially when kids are involved. The process may seem even more daunting when qualifying for a home loan while receiving alimony or child support. In this blog post, we’ll discuss Fannie Mae conventional loans and how they handle income from alimony and child support, making it easy for you to understand and navigate this topic.

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Understanding Fannie Mae Conventional Loans

Fannie Mae and Freddie Mac are considered conventional loans, while FHA, VA, and USDA loans are categorized as government-backed loans. Each agency treats income from alimony and child support differently, requiring various documentation and timelines. This is where confusion often arises for inexperienced or lazy loan officers, which then affects you.

The Importance of Income Documentation

For a Fannie Mae conventional loan, the lender or underwriter will focus on three main areas of income documentation:

1. Continuation of receipt

You need legal documentation stating the payment terms, such as a divorce decree or separation agreement, to prove that you’ll continue receiving alimony or child support. In some cases, state laws that mandate these payments and their conditions can be used if a legal arrangement isn’t available. However, this still requires proof of receipt.

2. History of receipt

Fannie Mae conventional underwriting guidelines require borrowers to show at least six months of consistent alimony or child support payments. This can be documented through canceled checks or bank statements.

3. Calculation of income

Determine the taxable status of your alimony or child support payments by consulting a CPA or an accountant. If these payments are non-taxable, you can multiply the dollar amount by 125%, allowing you to use this more significant sum when calculating your debt-to-income ratio for mortgage qualification.

Working with an Experienced Loan Officer

Working with an experienced mortgage professional who understands these guidelines and can present you with all your options is essential. An inexperienced loan officer might not know how to “gross up” non-taxable income or may only consider one set of guidelines when determining your eligibility.

Impact of Divorce on Homeownership

Divorce can significantly affect your homeownership plans, especially when it comes to qualifying for a mortgage. With the division of assets and potential changes in your financial situation, your ability to afford a new home can be uncertain. Additionally, the added responsibility of alimony or child support payments can further complicate matters.

Alimony and Its Effect on Mortgage Qualification

Alimony, also known as spousal support, is a payment made by one spouse to the other following a divorce. The purpose of alimony is to provide financial assistance to the lower-earning spouse and maintain their standard of living. Regarding mortgage qualification, alimony can be considered income only if certain conditions are met.

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To include alimony as income for a mortgage application, the following criteria must be satisfied:

• Legal documentation must be provided outlining the payment terms.
• A history of consistent alimony payments for at least six months.
• Proof of continuation for at least three years from the mortgage application date.

Child Support and Its Effect on Mortgage Qualification

Child support is a court-ordered payment made by a non-custodial parent to the custodial parent for the financial support of their child or children. Like alimony, child support can be considered income for mortgage qualification purposes, provided certain conditions are met.

To include child support as income for a mortgage application, the following criteria must be satisfied:

• Legal documentation must be provided outlining the payment terms.
• A history of consistent child support payments for at least six months.
• Proof of continuation for at least three years from the mortgage application date.