How can alimony or child support affect your USDA mortgage loan approval
Alimony or child support can affect USDA qualifying in a positive or negative way since it can be used as both income and count as a recurring monthly liability. In today’s video I am going to share with you the details on how alimony or child support can either increase or reduce the amount you can afford with a USDA loan.
Now, before we get started, don’t forget to take advantage and download our FREE USDA Blueprint to Success. This free guide is designed to walk you through the process step-by-step and is a great tool for both homebuyers and Realtors alike.
How alimony or child support income can impact your USDA loan approval
As a starting point, debts such as alimony or child support can either be a considered a liability or a positive source of income that may be used towards USDA loan qualifying.
Child Support, Alimony, and Garnishments:
When alimony or child support is owed by a loan applicant, USDA guidelines state:
“Applicants obligated to pay child support, alimony, garnishments, or other court ordered debts must have the payment included in the debt ratio.”
It is important to remember, whether child support is deducted from your paycheck or paid directly to an individual, the monthly amount must be included as a debt which will be documented by items such as a child support court order or divorce decree.
Child Support Income for qualifying
However, when received as income, court ordered child support may be used towards USDA loan qualifying when the applicant has:
- At least a 6-month history of receiving the income;
- The child support receipt has been consistent; and
- It will continue for at least 3 years past the date of loan closing.
Additionally, voluntary child support may also be used for qualifying, but will be subject to additional requirements.
Key points to remember when attempting to use child support income to qualify for a USDA loan:
- When the minimum history has been met, but the payment amounts are not consistent, the child support must be averaged over the time it has been received;
- Payments received for 6 months or less with zero received for any month must use zero;
Child Support – Tax Exempt Income
Also, per IRS.gov, child support payments are not taxable to the recipient. Further, because this would be classified as tax exempt income for USDA qualifying purposes, guidelines permit you to increase the income by 25% for qualifying purposes. This is commonly referred to as “grossing up” income which results in the ability to increase your qualifying amount.
For example: if someone receives $500 in child support that is not taxable, after grossing it up, we can use $625 towards their USDA loan qualifying.
I realize that we covered a lot today and even though not all lenders specialize in USDA loans, because of the experience here at “Metroplex” we are able to help homebuyers maximize their USDA qualifying ability.
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As always, I want everyone to make it a great day and I look forward to seeing your right here for the next tip of the week!