Is Alimony Income?

QUESTION:

If one is going to begin receiving alimony payments to continue for three years, can it be used as qualifying income for a mortgage loan? If so, is a two-year past history of the income required?

ANSWER:

Generally, three years of alimony can be used to qualify for a mortgage but that’s not the only question to be asked. For instance, can you show a pattern of alimony payments prior to applying for the loan, something to assure lenders that alimony is actually being paid?

With FHA loans, as one example, HUD says, “alimony, child support, or maintenance income may be considered as effective if such payments are likely to be consistently received for the first three years of the mortgage. The borrower must provide a copy of the final divorce decree, legal separation agreement, or voluntary payment agreement, as well as evidence that payments have been received during the last twelve months. Acceptable evidence of payment regularity includes canceled checks, deposit slips, tax returns, and court records. Periods less than twelve months may be acceptable, provided the payer’s ability and willingness to make timely payments is adequately documented by the lender.”

As to past income, if they want to avoid big liabilities lenders under Wall Street reform have an obligation to assure that borrowers are able to repay their loans. Toward this end, lenders must verify income and employment and that means borrowers need to document their loan application.

QUESTION:

Are there any situations where a lender will trade a lower principal balance for partial ownership in a property facing foreclosure?

ANSWER:

At least one servicer, Ocwen Financial Corp., has proposed such an arrangement using “SAM” financing, a shared appreciation mortgage. In effect, a lender might agree to lop off some of the principal balance if the borrower will give up some of the property ownership. It’s an interesting idea and could be helpful in many areas hit hard by foreclosures.