I have had clients who are divorcing or divorced, who encounter difficulties when they attempt to refinance their home and they try to include support payments they receive as income to qualify for their refinance.
According to a mortgage specialist, Bill Wolfe, who is part of my collaborative practice group, lenders are becoming more stringent about “qualifying income” in connection with refinancing as the result of a divorce. The resource specialist shared the current lending guidelines regarding support income.
Less than 12-months – If support (spousal/child/family) has been or will have been received for less than 12-months at time of the refinance application, then the support income, for loan qualification purposes, may not exceed 30% of the total qualifying income.
For Example: If an applicant has been receiving support payments for at least 6-months, but less than 12-months, and income of $5,000/month is needed to qualify, no more than $1,500 of qualifying income ($5,000 x 30%) can be attributable to support. If the refinance applicant has been the unemployed stay-at-home parent during the marriage and does not have a separate source of income, he/she will likely not be able to qualify to refinance until he/she has been receiving support for 12+ months.
More than 12-months – The 30% requirement is not necessary after 12-months of payments, but the lenders are looking more closely at reductions in support payments 3-5 years down the road.
Also, it is important to deposit your support check as a separate deposit transaction so it can be tied back to the support terms in the divorce or legal separation agreement. The support check(s) should not be combined with other checks/cash and cash should not be withdrawn as part of the deposit transaction. ATM deposits are not recommended.