August 14, 2015
For any applicant trying to get an FHA loan to purchase a home, the debt-to-income ratio is very important. How much money you have coming in versus how much you have going out for monthly bills and other financial obligations is a very big part of the lender’s calculations to see whether a borrower can afford the new loan.
One area that concerns some is whether alimony/child support is able to be used as part of the borrower’s potential income for those calculations. FHA loan rules currently available in HUD 4155.1 have plenty to say on how and why such income might be used. This type of income can indeed by used, as long as it meets FHA minimum requirements for “effective income” or “verifiable income”:
“Alimony, child support, or maintenance income may be considered effective, if
–payments are likely to be received consistently for the first three years of the mortgage
–the borrower provides the required documentation, which includes a copy of the final divorce decree, legal separation agreement, court order, or voluntary payment agreement, and
–the borrower can provide acceptable evidence that payments have been received during the last 12 months, such as cancelled checks, deposit slips, tax returns, or court records.”
FHA loan rules have some additional guidance to the lender for certain exceptions. “Periods less than 12 months may be acceptable, provided the lender can adequately document the payers ability and willingness to make timely payments. Child support may be grossed-up under the same provisions as non-taxable income sources.”
As you can see from the above, documentation is extremely important in these cases. Borrowers should not expect to have this type of income approved for use in the FHA loan debt-to-income ratio unless there is paperwork that can be provided.
Informal agreements may not be enough, as the FHA loan rules above indicate. You may be required to supply deposit slips, bank statements, and cancelled checks for as much as the past three years. When in doubt, discuss your circumstances with a lender to see what may be required.
Do you have questions about FHA home loans? Ask us in the comments section. All comments are held for moderation.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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