When you apply for a mortgage, you are asked to disclose your income. This typically means the income that you receive from your full-time job or your self-employment income if you own your own company. Sometimes, borrowers want to use alternative income in addition to their standard salary in order to make their application more enticing. One such source of income is child support. While you are not required to disclose your child support if you receive it – if you want to use it for qualifying purposes, you will need to know what is required in order for it to be used.
Verifying Child Support
One problem with using child support as a source of income is verifying it. Many couples have a verbal agreement amongst each other regarding child support. Unfortunately, this is not enough to be able to be used for qualification purposes for your mortgage. In order for it to count, you need to have a legal document that shows the amount of the child support that is paid to you, its frequency as well as its expected duration. This is usually shown on a document from the court, such as the divorce decree or child support order.
Showing a History
Just as with any other source of income, you will need to show a history of receiving child support on a regular basis. Most lenders require a full 12-month history, but some will allow 6 months. This is most easily shown with your bank statements that show regular deposits of the money. The history will need to be consistent with the court order for the lender to count it as a part of your income. If your ex-spouse is not consistent about making payments, it might be difficult to prove a solid history of receiving the payments in order to qualify for a mortgage.
Showing a Continuance
One of the requirements of including child support in your income is its continuance. In order for it to count, you will need to prove that the income will continue for at least another 3 years. This will usually be documented on the court order by stating the age that the ex-spouse needs to pay child support until, as well as your child’s birthdate. This means that if your ex-spouse is supposed to pay child support until the child turns 18 and he is now 16, the income would not count. On the other hand, if your child is 13 and the support is supposed to continue until he is 18, it would count. The main premise in determining the length that you will receive the income is to allow for very few changes in your debt-to-income ratio, up to a point, in order to reduce the risk of default on the loan.
Determining the Amount
Since child support is non-taxable income, it is grossed up for mortgage qualification purposes. This means that the lender will take 125 percent of the amount that you receive as the number used for qualification purposes. This is done because all income that is used is based off of the gross income, or income before taxes are taken out. This allows you to maximize the amount that you can claim for child support, enabling you to lower your debt ratio and increase your chance of getting approved.
Child support is a tricky source of income to use, but it is possible to use it if it is documented correctly. If you plan on using the child support that you receive, make sure that all of your papers are in order to allow the lender to use it. Everything needs to be official and the amounts need to be documented from a reputable source, such as the bank. Just saying that you are supposed to receive child support is not enough; the banks need to see actual proof in order to allow the money to be counted as income.
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