There are specific guidelines for participating FHA lenders who must include child support, alimony, or maintenance payments as part of loan processing. Borrowers who must pay child support, or other forms of support will be required to furnish documentation showing the monthly financial obligation associated with these payments.
That documentation may include court orders, receipts or other proof-of-payment. The lender will need to know the borrower’s specific monthly obligation in order to properly calculate the debt to income ratio.
This is a fairly straightforward process-after all, the borrower has a financial obligation in the same way paying credit cards, student loans, and other debts are handled month-to-month. But what about the FHA loan applicant who is the recipient of these payments?
FHA loan rules do include guidelines for the lender in cases where alimony, child support, and other court-ordered payments are to be counted as verified income. A potential FHA borrower receiving child support will be required to provide documentation of that income in order to be counted in the borrower’s debt-to-income ratio.
HUD 4000.1 advises the lender, “The Mortgagee must obtain a fully executed copy of the Borrower’s final divorce decree, legal separation agreement, court order, or voluntary payment agreement with documented receipt.”
The rules also include circumstances where the borrower has provided a legal divorce decree as proof of such payments.
“When using a final divorce decree, legal separation agreement or court order, the Mortgagee must obtain evidence of receipt using deposits on bank statements; canceled checks; or documentation from the child support agency for the most recent three months that supports the amount used in qualifying. The Mortgagee must document the voluntary payment agreement with 12 months of cancelled checks, deposit slips, or tax returns.”
FHA loan rules state that the borrower is required to provide evidence that “the claimed income will continue for at least three years. The Mortgagee may use the front and pertinent pages of the divorce decree/settlement agreement and/or court order showing the financial details.”
The lender must determine that the payments are indeed stable, reliable, and likely to continue. Informal arrangements or those that have no clear “paper trail” may be more difficult for the lender to verify and may not be counted towards the debt to income ratio, depending on circumstances. That’s why it is best that potential borrowers do as much as possible to establish a record of such payments in advance of the loan application.
