November 6, 2015
A reader got in touch with us with a question about how FHA loan rules view alimony payments as part of the debt to income ratio calculation. “I pay a certain monthly amount of alimony to my ex-spouse, in addition to usual monthly credit card payments, and utilities, food, etc. I receive considerable income tax reductions due to making the alimony payments, which means that I have more disposable income to live on than I otherwise would have.”
“I understand that the FHA can/will take that into account in computing my debt to income ratio. Is that true, and can you explain how it works?”
FHA loan rules governing the debt-to-income ratio are found in HUD 4000.1, which has the following instructions to the lender, starting with the FHA definition of alimony, which is described as follows:
“Alimony, Child Support, and Maintenance are court-ordered or otherwise agreed upon payments.”
So for the rules that follow, lenders apply them as they are agreed upon between the two parties or ordered by the court. The lender may require documentation to show the agreements or orders are bona fide:
“The Mortgagee must verify and document the monthly obligation by obtaining the official signed divorce decree, separation agreement, maintenance agreement, or other legal order. 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.”
Next, HUD 4000.1 describes how the lender must calculate the recurring obligation:
“For Alimony, if the Borrowers income was not reduced by the amount of the monthly alimony obligation in the Mortgagees calculation of the Borrower’s gross income, the Mortgagee must include the monthly obligation in the calculation of the Borrowers debt.”
Furthermore, “The Mortgagee must calculate the Borrowers monthly obligation from the greater of Borrower’s payment obligation; or the amount shown on the most recent decree or agreement establishing the the monthly amount of the garnishment.”
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
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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