How 'Other' Income Can Help You With a Home Loan

When you’re applying for a home loan, lenders look at your financial situation to decide how much you can borrow. Did you know that payments like alimony, child support, and separate maintenance can sometimes count as income? Let’s break it down so it’s easy to understand!

What Are These Payments?

Some payments you receive every month can be considered a reliable source of income. These include:

• Alimony: Money received from an ex-spouse after a divorce.
• Child Support: Money received to help care for your children.
• Separate Maintenance Payments: Money received if you’re legally separated but not divorced.

How Lenders Use These Payments as Income

If you receive regular alimony, child support, or separate maintenance payments, lenders may count them as part of your income when you apply for a home loan. This can help improve your debt-to-income ratio (DTI) and increase the amount you qualify to borrow.

What Is a Debt-to-Income Ratio?

Your debt-to-income ratio (DTI) compares how much money you owe each month to how much money you make. When these payments are added to your income, it can lower your DTI and make you look more financially stable to lenders.

Here’s how it works:

1. Add up your monthly income, including alimony, child support, or separate maintenance payments.
2. Divide your total monthly debts by your total monthly income.
3. Multiply by 100 to get a percentage.

For example:

• If your monthly income is $5,000 and you receive $1,000 in child support, your total income becomes $6,000. If your debts are $1,500, your DTI is now 25% instead of 30%.

Requirements for Using These Payments as Income

To use these payments as income, lenders will likely ask for proof that they are:

1. Reliable: Payments must be consistent and on time.
2. Long-Term: Lenders often want to see that the payments will continue for at least three years.
3. Documented: You’ll need to provide proof, such as a court order, payment history, or bank statements.

How This Affects Your Loan

Using these payments as income can:

• Improve Your Borrowing Power: A higher income may qualify you for a larger loan or better terms.
• Lower Your DTI: This makes you a more attractive borrower to lenders.
• Provide Financial Stability: Showing a consistent income stream can give lenders confidence in your ability to make mortgage payments.

What Should You Do?

If you want to use alimony, child support, or separate maintenance payments as income, here are some steps:

1. Gather Documentation: Collect court orders, payment histories, and bank statements to prove the payments are reliable and ongoing.
2. Talk to Your Lender: Let them know about these income sources so they can guide you through the process.
3. Be Prepared for Questions: Lenders may ask for extra information to ensure these payments meet their requirements.

Final Thoughts

Monthly payments like alimony, child support, and separate maintenance can be a helpful part of your financial picture when applying for a home loan. By using these payments as income, you might qualify for a larger loan or better terms. Talk to your lender to see if these payments can work in your favor and help you get one step closer to your dream home!