Can You Use Alimony as Income for a Mortgage?

Alimony, often referred to as spousal support or maintenance, can be a significant income source for individuals after a divorce. Many people wonder if these payments can be considered when applying for a mortgage. The answer is yes, alimony can be used as qualifying income for a mortgage, but it is subject to specific criteria and verification processes established by mortgage lenders. Understanding these requirements is important for those seeking to use alimony for home financing.

Key Lender Requirements for Alimony Income

For alimony to be recognized as qualifying income by mortgage lenders, it must meet several conditions. Lenders require a formal legal document, such as a divorce decree, separation agreement, or court order, that clearly outlines the payment terms, including the amount and frequency of payments. This document assures lenders the income stream is legitimate and enforceable. Payments must also demonstrate a consistent history of receipt. Most conventional lenders look for at least six months of documented, consistent alimony payments, while some loan types, like FHA loans, may require up to 12 months.

The duration of future payments is important. Lenders require proof that alimony payments will continue for a minimum of three years from the date of the mortgage application. If the alimony is set to terminate sooner, lenders may not count it as income or may only consider the portion that falls within the three-year window. Regular and predictable payments are also important; sporadic or inconsistent payments can make it difficult for lenders to consider this income reliable for mortgage qualification.

Required Documentation and Verification

To prove alimony income, borrowers must supply specific documents to their mortgage lender. A copy of the divorce decree, legal separation agreement, or court order is required, as it details the terms of the alimony, including the payment amount and duration. This document confirms the legal obligation for the payments. Lenders will also require proof of consistent receipt, typically through bank statements showing regular deposits of the alimony payments for the required period, often six to 12 months. Canceled checks or deposit slips that clearly identify the payments as alimony provide strong supporting documentation.

Tax returns can also be necessary to verify reported income. In some cases, lenders might request direct verification with the payer or a letter from an attorney confirming the terms and expected continuance of the payments.

How Lenders Calculate and Assess Alimony Income

Lenders incorporate alimony income into a borrower’s financial profile through the debt-to-income (DTI) ratio. Alimony received is added to a borrower’s gross monthly income, which can lower their DTI ratio and increase their borrowing capacity. For example, if a borrower earns $5,000 monthly from employment and receives $1,500 in qualifying alimony, lenders would assess their income as $6,500 for DTI calculations.

A common practice for non-taxable alimony income is “grossing up,” where lenders increase the income amount by a certain percentage to account for its tax-free nature. This adjustment recognizes that the borrower retains a larger portion of non-taxable income compared to taxable income. For instance, $1,000 in non-taxable alimony might be treated as $1,150 to $1,250 in qualifying income, depending on the lender and loan type, with common gross-up rates ranging from 15% to 25%. Lenders also conduct a risk assessment, considering factors such as the reliability of the payer and the overall financial picture, to ensure the income is dependable throughout the mortgage term.

Navigating the Mortgage Application Process

When using alimony as income for a mortgage, clear communication with potential lenders from the outset is beneficial. It is advisable to discuss how alimony will be factored into your application early in the process. The typical mortgage application flow begins with an initial consultation, followed by pre-approval, where a lender provides an estimate of how much you can borrow based on preliminary financial information.

After pre-approval, the formal application and underwriting phases commence. During underwriting, the lender reviews all provided documentation, including those related to alimony, to verify income, assets, and debts. Borrowers should anticipate potential requests for additional documentation or clarification regarding the alimony payments during this stage. The focus during this phase is on confirming the consistency, duration, and legal basis of the alimony income.