Spousal Support (alimony) payments can be a major complication when trying to qualify for a mortgage, and it becomes increasingly difficult with the addition of other monthly liability payments such as credit card or vehicle loans.
Fortunately, special programs are available to help you finance your home while still meeting your obligations. The example below explains why you may have had trouble so far, and how I can help you going forward!
Debt vs Income, a Key Factor
A key qualifying factor with most lenders is that a borrower’s total debt must not exceed a certain percentage of total income. This is referred to as the Total Debt Service Ratio.
Most lenders treat spousal support payments like any other liability, while a few have programs allowing them to be deducted from the equation altogether.
Consider the following lender approaches where:
Allowable Total Debt Service Ratio = 42%
Mortgage = $2,000 monthly x 12 months = $24,000 / yr
Alimony = $1,500 monthly x 12 months = $18,000 / yr
Gross Annual Income = $100,000 / yr
Most Lenders’ Approach
|
(Mortgage Payments + Liabilities incl. Alimony) |
| ($24,000 + $18,000) $100,000 |
| $42,000 $100,000 |
| = 42% A single credit card or vehicle payment will disqualify you 🙁 |
Special Program
Some lenders offer programs where alimony is completely eliminated from the equation so the total debt ratio is calculated only on the remaining income after alimony has been paid.
|
(Mortgage Payment + Liabilities – Alimony) |
|
($24,000 – $18,000) |
|
$24,000 |
| = 29.3% This is well within acceptable limit for participating lenders 😀 |
I can help both payer and payee in the spousal support situation obtain financing. Let’s chat today.