Applying for a mortgage means you must prove that you have enough income to support the payment. Sometimes you might find yourself right at the border between approval and denial. If you receive child sport, you might wonder if you can use it for qualifying purposes.
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In some cases, you can definitely use it, but other times, it’s not possible. It depends on the circumstances of the payments. We review when you can and cannot use this method of income for qualifying purposes below.
Is the Child Support Court Ordered?
First and foremost, the child support must be court ordered. In other words, it cannot be a verbal agreement between you and your ex-spouse. No lender will accept that as ‘continual income.’ You have to have a formal court ordered document stating the amount of money your ex-spouse must pay, the date he/she should pay it, and the date that it will continue through.
Having the court ordered document given the lender reassurance that you’ll receive the income. It’s still not a guarantee and you’ll still have to prove receipt of it (see below), but you have a better chance of receipt if it’s court ordered. A verbal agreement can be changed or ignored at any time with very few repercussions.
Do You Have a History of Receiving the Child Support?
Just like any other type of income, you must prove that you have a history of receiving it. The actual time you must receive it depends on the lender. In general, you should expect to provide proof of receipt for the last 12 months. However, it’s not unheard of to find lenders that are willing to accept 6 months of this type of income and still qualify for the loan.
You can prove receipt of the income by providing your bank statements for the required period showing the deposited income. In order for a lender to count it, though, you must receive it on or around the same date as is stated in your court ordered documents. If you do not receive the income regularly, which is quite common in divorce cases, it may be harder to prove receipt of the income.
Will the Child Support Continue?
Next, you have to prove that the child support will continue. In general, you must receive it for the next three years in order for it to count. This should be easy enough to prove with your court ordered documents, though. Somewhere on the documents it should state the age of each child that your ex-spouse must pay the child support through. The lender can then determine the length of time by knowing your children’s birthdates.
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For example, if your child is now 17 and the child support will continue until he is 18, you cannot use the support as income. But, if your child was 14 and you will receive the payments until his 18th birthday, it would be included. This just helps the lender understand the stability of your income for the near future, helping you to keep your debt ratio stable for as long as possible.
How Much Can you Use?
The final question is how much of the income can you use for qualifying purposes? Unlike most other types of income, the lender will actually use 125% of the amount you receive. This is because the income is not taxed. So for example, if you receive $1,000 each month, the lender will use $1,250 for qualifying purposes. This may help give you the boost you need to gain approval.
Tips for Using Child Support
Before you try to apply for a loan using child support as a source of income, use these following tips:
- Deposit the checks you receive right away. If you sit on them, they lose their efficiency in the lender’s eyes. Keep the dates of deposit as consistent as possible in order to ensure that the lender will accept this form of income.
- Keep copies of the checks. Take a copy of each check you receive for another form of verification of receipt of the income. The lender may want to see that the check came from your ex-spouse, for instance.
- Don’t deposit the child support check with any other deposits. Make sure your money from your ex-spouse is the only deposit. If you combine amounts, it would be impossible for the lender to tell if you actually received the money you said you received.
It is definitely possible to use child support as income for your mortgage. You just have to walk a fine line and make sure you follow all of the lender’s rules to the ‘T.’ If you find that one lender won’t use this income, but you meet the requirements above, such as having court ordered child support and proof of receipt, you can shop around to find a lender that is willing to use it.