Is Child Support Considered Income When Buying a House? The Definitive Guide

The short answer is yes, child support can be considered income when you’re applying for a mortgage to buy a house, but it’s not quite as simple as adding it to your gross monthly salary. Lenders have specific requirements and guidelines that need to be met for them to count this income source. Let’s dive into the nuances of how this works and what you need to know to strengthen your mortgage application.

The Nuances of Child Support as Qualifying Income

Simply declaring that you receive child support isn’t enough for a lender. They need to be confident that this income stream is reliable and will continue for a predictable period. Think of it this way: banks aren’t gamblers; they want assurance of repayment. Here’s a breakdown of what they look for:

• Stability and Duration: The lender will primarily assess the consistency and expected duration of the child support payments. They typically require a history of regular, on-time payments.
• Documentation is Key: You’ll need to provide documentation, such as a divorce decree, child support order, or court agreement, that clearly outlines the payment amount, frequency, and duration. Bank statements showing deposits are also crucial.
• Continuity Requirements: Most lenders require that the child support payments continue for at least three years from the date of the mortgage application. This is a critical factor. If the child is nearing adulthood or the support order is set to expire sooner, it might not be counted.
• Verification of Receipt: Lenders want to see evidence that you’ve actually been receiving the child support payments consistently. This usually involves providing 12 months, or in some cases even longer, of bank statements or other official records demonstrating the deposits.
• Impact of Arrears: If the paying parent is in arrears (behind on payments), it can negatively impact the lender’s decision. The lender may be hesitant to rely on an income stream that is not consistently delivered.
• Voluntary vs. Court-Ordered: While voluntary child support arrangements can be helpful, lenders generally prefer court-ordered child support as it’s legally binding and perceived as more stable.

Why Lenders Care So Much

It’s all about risk assessment. Lenders need to be certain that you can afford the monthly mortgage payments. Since child support is often a significant portion of a recipient’s income, it’s understandable that lenders need to carefully evaluate its stability. If the income stream is unreliable, the lender risks the borrower defaulting on the loan.

Strengthening Your Application: Pro Tips

• Document Everything: Keep meticulous records of all child support payments received. Bank statements are your best friend.
• Communicate Clearly: Be upfront with your lender about your child support income. Provide all the necessary documentation proactively.
• Address Any Concerns: If there have been inconsistencies in payments, be prepared to explain the reasons and provide any documentation that supports your explanation.
• Consider Alternative Income Sources: If the child support income is insufficient or doesn’t meet the lender’s requirements, explore other income sources, such as part-time employment, or consider waiting until the child support situation is more stable.
• Work with a Mortgage Professional: A knowledgeable mortgage broker or lender can guide you through the process and help you present your application in the best possible light.

Child Support Income and Debt-to-Income Ratio

The amount of child support income you can use to qualify for a mortgage also affects your debt-to-income ratio (DTI), which is a crucial factor in mortgage approval. Lenders calculate your DTI by dividing your total monthly debt payments (including the new mortgage payment, credit card bills, student loans, car loans, and child support you pay) by your gross monthly income.

The lower your DTI, the better. By including your child support income, you increase your gross monthly income, which can lower your DTI and make you a more attractive borrower.

Navigating Potential Challenges

It’s important to be aware of potential hurdles when relying on child support income for a mortgage:

• Unexpected Interruptions: Life happens. The paying parent might lose their job, become disabled, or experience other unforeseen circumstances that could impact their ability to pay child support.
• Modification of Orders: Child support orders can be modified, potentially reducing the amount of support you receive.
• Relocation: A change in residence of either parent or the child can sometimes trigger a review of the child support order.

FAQs: Everything You Need to Know About Child Support and Home Buying

FAQ 1: What kind of documentation do I need to prove I receive child support?

You’ll typically need a copy of the divorce decree or child support order, 12 months (or more) of bank statements showing deposits, and possibly a letter from the paying parent’s employer verifying their income. Be prepared to provide anything the lender requests to substantiate the income.

FAQ 2: What if the child support order is less than three years old?

This can be tricky. Some lenders might still consider it if there’s a strong likelihood of it continuing for at least three years. Others might require a longer payment history before counting it. Talk to several lenders to explore your options.

FAQ 3: Does it matter if the child support is paid directly or through a government agency?

Generally, payments made through a government agency are considered more reliable as they have a built-in enforcement mechanism. Direct payments are acceptable as long as you can document them clearly.

FAQ 4: What if the paying parent is self-employed?

Self-employment can complicate things as income is often less predictable. The lender may require additional documentation to verify the payer’s income and ability to consistently make child support payments.

FAQ 5: Can I use alimony as income to qualify for a mortgage?

Yes, alimony (also known as spousal support) can also be considered income, subject to similar requirements as child support: documentation, stability, and a minimum duration of at least three years.

FAQ 6: What if I’m also paying child support?

If you are paying child support, that payment will be included in your monthly debt obligations, which will increase your debt-to-income ratio (DTI). It’s crucial to factor this into your affordability calculations.

FAQ 7: Does the age of the child matter?

Yes, the age of the child is a significant factor. Lenders typically require the child support to continue for at least three years from the date of your mortgage application. If the child is close to the age of emancipation (usually 18), it may not be counted.

FAQ 8: What if the paying parent lives in another state?

This usually doesn’t pose a significant problem as long as the child support order is legally valid and enforceable in the relevant jurisdictions.

FAQ 9: Can I use child tax benefits or credits as income?

Generally, no. While child tax benefits can provide financial relief, they are usually not considered reliable income by mortgage lenders.

FAQ 10: Will the lender contact the paying parent?

It’s unlikely that the lender will directly contact the paying parent. They will primarily rely on the documentation you provide. However, they might verify the information with the agency administering the child support order, if applicable.

FAQ 11: How does child support affect my credit score?

Receiving child support does not directly impact your credit score. However, if you are paying child support and fail to make timely payments, it could potentially negatively affect your credit if the payments are reported to credit bureaus (typically through a court order violation).

FAQ 12: Should I disclose child support income even if I think it might not qualify?

Yes, absolutely. It’s always best to be transparent with your lender. They can assess your situation and advise you on the best course of action. Omitting information could be viewed negatively and potentially jeopardize your application.

In conclusion, child support can be a valuable asset when buying a house, but it requires careful planning and meticulous documentation. By understanding the lender’s requirements and addressing potential challenges proactively, you can increase your chances of achieving your homeownership goals. Good luck!