Alimony Post Divorce for Home Loan

Using alimony income/spousal maintenance income to qualify for an Arizona mortgage is perfectly normal andUsing Alimony to Qualify for a Mortgage acceptable.  Can it be used as soon as one starts to receive it?  There are a few simple rules that typically apply (we will come back to “typically” in a moment) when including alimony income on a mortgage application:

Alimony Income Mortgage Rules

1. Income terms (amount and frequency) must be clearly documented on a final/official divorce decree
2. Income must be set to be received at least 3 years after the mortgage applicant using the alimony to qualify closes on their home loan
3. There must be a history of receiving the alimony for at least 12 months before the applicant who is using the alimony income to qualify closes on their new loan

#1 and #2 are pretty basic.  What about #3?  What if it is not possible?   This comes up quite often in an Arizona divorce sceanrio.  Imagine the circumstances surrounding a typical divorce.  The couple (pre-divorce) lives together.  After the divorce, the chances they stay under the same roof are ZERO!  To take this further, what if one of spouses was a stay at home partner with no defined career path or recent job history.  All of a sudden, that partner may be without a home and may be relying primarily on alimony income etched out in a hot off the press divorce decree.   Standard mortgage rules require that they find a way to live for 12 months so that they can then show a mortgage lender they have a 12 month history of receiving alimony allowing them to use it to qualify for a new mortgage.  Not ideal.  I have good news!   There is a way to try and get around this guideline.

How Can One Use Alimony Right After Their Divorce

A recent divorcee that is relying solely on alimony as their primary income source needs a way to use that income immediately if they want or need to finance their own home post-divorce.  Traditional mortgage regs say they must wait until they can show that they have received the income for 12 months before the income can be considered on an Arizona mortgage application.  However, a Phoenix area lender can work with an underwriter to chop that time-frame down from 12 months to 0 (or at least less than 12).   It is not a guarantee and the solution I am about to reveal  is NOT something that will work in every case.   Let’s jump in:

A divorcee may be able to use alimony income prior to the 12 month rule if they can document that the alimony income has a very strong likelihood of being paid for the first 36 months (or more) of their new mortgage.   You see, mortgage wisdom says if a divorcee has been paid alimony for at least 12 months prior to loan approval then the likelihood it will continue is strong.  In the absence of that 12 month history an underwriter will want to see some other sort of “proof” that alimony will be paid for at least 3 years.  Did you just say to yourself “how about the fact that the court says the other party has to pay it?”  Suffice it to say the phrase “dead beat Dads/Moms” came about for a reason.  You would be AMAZED at how many loan applications a lender sees where alimony/child support are not paid despite a court mandate.

How to document Alimony is likely to continue?

To show an underwriter that an ex will pay alimony for at least 3 years an Arizona loan officer can:

1. Order a verification of employment (aka “VOE”) showing the terms of employment & income of the ex who is liable for the alimony payments.
This report shows: income amount, length of employment and likelihood that employment will continue (all verified by the employer)

2. Obtain the previous 2 years W2’s/1099’s and Federal Tax Returns to show income patterns for the ex paying alimony

3.  Obtain asset statements to show net worth/liquidity of the ex paying alimony

4. Obtain a credit report for the ex paying alimony to see if they pay their other bills on time

5. Obtain a letter from the ex stating their intent to pay alimony along with their intent not to change their income/employment etc…

Each of these documents (in addition to a final divorce decree) can help substantiate that an ex responsible to pay alimony will actually follow through with their obligation for at least 3 years from the day the ex receiving the alimony closes on their new home loan.

If you have any questions on how to use alimony income to qualify for an Arizona home loan call or email us today!

By Jeremy House

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