When can alimony and child support be used to qualify for a mortgage?

Mortgage (credit: clipart.com)

Alimony & Child Support Guidelines:

In today’s heavily regulated mortgage environment, I am often asked to explain the latest guidelines regarding using Alimony and Child Support as income to qualify for a mortgage loan.  To help you in crafting workable solutions for your separating and divorcing clients, I have provided an outline of these guidelines below.

For Conventional & Government Loans: These represent loans currently available up to $625,500*.

The key word here is “stable”

  • Conventional Loans: To be considered stable income, full, regular and timely payments must have been received for six months or longer. NOTE: If a borrower who is separated does not have a separation agreement that specifies alimony or child support payments, the lender will not consider any proposed or voluntary payments as income. In other words they must have received the payments for six months from the date of the support agreement.
  • Government Loans: When a borrower has been receiving full, regular, and timely payments for alimony, child support, or maintenance for 12 months, the support is considered as stable income. (at the Underwriter’s discretion for periods less than 12 months may be acceptable provided the lender can adequately document the payer’s ability and willingness to make timely payments.  Typically less than six months will not be considered as stable income)

In order for the alimony or child support to be considered as acceptable stable income, borrower must show evidence that it will continue for at least three years after the date of the mortgage settlement.

Documentation:

Acceptable verification that alimony or child support will continue to be paid include …

  • A photocopy of a divorce decree or separation agreement (if the divorce is not final) that provides for the payment of alimony or child support and states the amount of the award and the period of time over which it will be received.
  • Any other type of written legal agreement or court decree that describes the payment terms for the alimony or child support. If state law requires alimony, child support, or maintenance payments the provided document must specify the conditions under which the payments must be made.
  • When determining the acceptability of this type of income, consideration will be given to the borrower’s regular receipt of the full payment due (stability) and any limitation on the continuance of the payments, such as the age of the children for whom the support is being paid or the duration over which the alimony is required to be paid.
  • If a borrower who is separated does not have a separation agreement that specifies alimony or child support payments, consideration cannot be given to any proposed or voluntary payments as income when qualifying the borrower.

Proof of Receipt:

The borrower must also provide acceptable evidence of his or her receipt of alimony or child support funds.  Examples include, but aren’t limited to…

  • Deposit slips (if paid by check, recipients should make a copy of the check and deposit the full amount of the check)
  • Court records
  • Copies of signed federal income tax returns that were filed with the IRS
  • Copies of the borrower’s bank statements that show the regular deposit of these funds

Underwriting analysis will take into consideration the regularity and timeliness of the payments, as well as whether the borrower received all or only part of the full amount that was due.*(call me when you have loans above $625,500 as guidelines are case by case at that level).

Should you have any questions on these guidelines or any other mortgage related matters, please do not hesitate to contact me.  

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Glen Lazovick is a Senior Mortgage Banker with Apex Home Loans Inc, in Rockville Maryland.  www.glenlends.com  glazovick@apexhomeloans.com

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Property questions abound in a divorce situation

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By Harvey S. Jacobs

While divorce can be an emotional roller coaster, the one area that needs reasoned, dispassionate, businesslike treatment is what to do with the real property assets of the divorcing duo.

The same principles apply whether the property in question is a modest condominium serving as the couple’s principal residence or a large portfolio including vacation and investment properties. The most important thing to remember: Never sign over your ownership interest in any real estate until your obligation to pay the outstanding loans secured by that real estate have been paid off or otherwise accounted for in the property settlement agreement.

Too often, one spouse agrees to convey his or her interest in the marital home without remembering that the mortgage was taken out by both spouses. Until that mortgage is paid off, typically through a refinance, or is assumed by one spouse in a transaction that expressly releases the other from liability for the mortgage, a divorcing spouse will remain legally liable for the entire mortgage (as a co-borrower) but will have conveyed 100 percent of his or her ownership interest. This presents the worst outcome: being left with the debt on the home but no home.

The reason that the conveying spouse will be liable for 100 percent of the debt is that virtually all promissory notes signed by both spouses have language that states that the parties “shall be jointly and severally liable for the entire debt.” That means the bank can go after just one spouse for the entire note balance. Sure, the party that gets stuck paying the whole note can seek to recover half of what was paid from the other spouse, but depending upon financial circumstances, that might not be possible.

Another principle is to make sure that the rights and obligations that go along with possessing the property are clearly specified. If one spouse is to remain in the marital home for a period of time before selling it, details such as how long the person can remain in the home and responsibility for paying outstanding mortgages, taxes, insurance, utilities and condo or homeowners association dues must be spelled out. The divorcing spouses also must agree on who will be responsible for repairs, landscaping, pest inspections and other maintenance.

If improvements will be needed to get the property ready for sale, the property separation agreement must identify who will approve them and who will pay for them. The last thing a divorced couple will want is to be forced to discuss and agree upon paint colors. When one spouse is buying the marital property from the other, this transaction should be documented with a promissory note, deed of conveyance and, unless it’s a cash buyout, with a deed of trust recorded against the marital home. If one spouse needs to borrow money to buy out the other, the selling spouse must make sure that all prior mortgages are paid off and that the new financing obligates only the buying spouse.

If one spouse not buying out the other and the property is going to be sold to a third-party both parties will need to sign all the sales documents, including the listing agreement, disclosure documents, the sales contract, the HUD-1 settlement statement, and of course, the deed of conveyance.

If the spouses simply do not wish to spend that much time signing documents together, a power of attorney can be used to grant legal power to another trusted person.

If there are mortgages on the property, the divorcing spouses will need to analyze whether the net sale proceeds will be more than the outstanding balances of all the mortgages. If so, they will need to decide how to split those proceeds. But in these economic times, the negative-equity scenario, in which the mortgage debt exceeds the net sales price, is an all-too-common occurrence. The spouses will need to agree on who will handle those deficiencies and how. For example, will both spouses need to bring cash to the closing table?

More subtle, but equally important, the parties must agree on who will bear the tax and credit consequences of a negative-equity scenario. Losses on principal residences are not deductible for tax purposes, but losses on investment properties can be deducted against investment income and may be of greater value to the spouse who has the most investment income. All these factors should be addressed in the comprehensive property settlement agreement.

Finally, the timing of the divorce and property sale needs to be carefully analyzed to ensure that the spouses get all available tax benefits. For example, under the IRS code, a married couple filing jointly may exclude up to $500,000 of capital gain upon the sale of their principal residence. To qualify, each spouse must have owned and lived in the residence for at least two of the previous five years from the sale date. So if the marital property is to be held for a period of time after the divorce is final, or if the property has not sold after the divorce but one spouse moves out, care must be taken to ensure that the property is sold before the two-year-residency period expires. For divorcing spouses who fail to meet the two-year-residency requirement, the IRS does provide for a pro-rated exclusion.

For more information, download IRS Publication 523 “Selling your Home” from http://irs.gov

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Harvey S. Jacobs is a real estate lawyer with Jacobs & Associates: Attorneys at Law LLC, in Rockville Maryland.  http://www.jacobs-associates.com  Jacobs@Jacobs-Associates.com

 

Why we are a team….

For Sale

We understand that going through a divorce can be difficult and stressful; even more so when there’s real estate involved.

Therefore if divorce is necessary, we are here to help and serve you.  Our focus is on you, the person, and we want to assure you get the very best possible outcome.  We listen to your concerns, provide you with the information you’ll need and we always take the time to explain all of your options, so you can make educated decisions.
When Real Estate is involved in a divorce, there are many scenarios that may play out.
One spouse buys the other out, and will need to determine the value of the home so they may make a fair buyout offer.Once the value of the home is established, the spouse buying a new home may need to be removed from the current mortgage so they can qualify for a purchase.Cash may be needed from the equity of home to buyout one of the spouses.

The House is owned outright and one of the spouses needs to be removed from the deed.

The house needs to be put up for sale.

You find yourself without a home an need to purchase a new home.

There’s enough stress and headache associated with a divorce, so the last thing you need to worry about is finding experienced professionals that can work together to assure you the best possible outcome, while keeping the details of your agreement confidential.  Our team was formed to eliminate the stress of choosing the professionals you’ll need, while providing you with personalized service tailored to your unique needs and goals.
We’ve assembled a team of local professionals that understand the challenges and stresses of a divorce, are experts in their fields and are prepared to help you navigate the complexities of managing real estate during a divorce.