Perhaps you’re in the market for a new property to call home after getting a divorce (one with a spacious backyard and a lovely playroom!), but you have outstanding child support payments. Don’t worry; that’s not a dealbreaker! You can make back child support and mortgage qualification work.
Child support or alimony payments do not affect a borrower’s ability to secure a mortgage, per se. It is the borrower’s capacity to provide a steady stream of income that is the decisive factor.
Is child support considered debt when applying for a mortgage? The ratio of your monthly debt payments to your monthly income is a major factor that mortgage lenders take into account when deciding whether or not to grant you a home loan. They will look at how much of your earnings go toward repayment of your debts, such as car notes and credit card balances. There is also the matter of child support payments, which are also a financial obligation.
As long as your net income after all costs remains below the qualifying DTI threshold, there is no risk to your ability to get a mortgage. Lenders may ask you to provide a copy of your agreement to determine how long you will need to continue making these monthly payments.
A borrower may have a debt-to-income ratio of up to 43 percent and still qualify for a mortgage, but a lower DTI will speed up the process and provide access to more lenders. Your ability to secure a mortgage loan may be hampered if your child support payments push you above the 43 percent threshold, however.
Considerations
- If the child support late payment is on your credit report, you should talk to several lenders before the mortgage application to know what you need to do to be accepted. Before applying for a mortgage, discussing your finances and credit history with loan officers is good, but you shouldn’t apply until you know their expectations of you. Here are more reasons why you should wait to buy a house.
- On the other side of the coin, failure to pay child support may not be reported to credit bureaus at all. Anyone behind on their child support payments is still eligible for a Fannie Mae loan or a private loan from any lender. However, they need to be eligible in terms of credit score and debt-to-income ratio. A person’s chances of being accepted can also improve if they have money stashed away. Do you have to disclose child support on your mortgage applications? In mortgage qualification, all applicants must disclose any outstanding child support obligations and debts. Lying about child support on mortgage applications is unacceptable.
- The next step is to determine, with the help of a mortgage calculator, whether or not you will be able to buy a home while still meeting all of your other financial obligations, including the current and past due child support payments.
- The debt you owe will exponentially increase if you stop making payments. If you cease or reduce your child support payments, you will incur interest charges of 6% on the unpaid balance. It is preferable to make some kind of payment rather than none at all. Although making full monthly payments is preferable, paying as much as possible toward your debt is still necessary. Your debt will only rise if you stop making payments.
- A parent may use a 0% interest credit card, personal loan application, and other forms of financing to settle child support arrears and, in some instances, reduce monthly payments. You’ll still have to include it into your debt-to-income ratio, but having unpaid child support won’t be an obstacle to acquiring that mortgage.
- A parent may also petition the court for a modification if they have a significant change in income sources, making it impossible to maintain current child support payments. But the court order will not affect previous periods. There will still be a balance due for any child support that has not been paid up to that date. This is why acting quickly if a change is required is essential. Consultation with legal counsel may be helpful at this stage.
Bottom Line
It’s natural for parents overdue on child support to worry about whether or not they’ll be denied a mortgage because of their situation. While a parent may have trouble getting a mortgage with child support arrears, this is not an automatic disqualifier.
Working with a family law attorney might benefit those closing a child support case. A parent may seek legal advice to negotiate terms to remove their name from government databases, allowing them to make payments on schedule. An attorney may also argue that the child’s best interests would be served by permitting the parent to get a mortgage.
