Going through a divorce can be an extremely trying time and deciding what to do with the marital home can create a lot of emotion and stress, especially if there are children involved. At Next Act Properties, we specialize in providing real estate solutions for divorcing and divorced people. We know how to help you collect the information you will need to quickly and efficiently obtain mortgage financing during or after your divorce.

If one spouse would like to keep the home after divorce, it is highly likely that he or she will need to refinance the existing mortgage into his or her own name, since the other spouse will not want to remain obligated for a mortgage on a home they no longer own.

Since every divorce is unique, some divorcing couples may require different documentation than others; but in our experience, the following are the most common documents you will need to provide to the lending organization:

  • Standard mortgage financing documents:  These include proof of employment income, business income, rental property income, disability income, and divorce-related income (provided the applicant wants to disclose and rely on income from alimony, child support, and/or a property settlement note); tax returns; proof of assets (such as bank, investment, retirement statements, etc.); liabilities (such as credit cards; auto, student, mortgage and other loans; alimony and child support if you are the one paying; etc.); credit scores and reports from all 3 credit agencies; a property appraisal; etc.
  • Executed copy of the final Divorce Settlement Agreement and/or Divorce Decree: Although you may feel it’s none of the lender’s business, they must perform their due diligence and confirm any court-ordered assignment of marital debt as well as the amounts and duration of any alimony and/or child support payments. An executed copy is one that is executed by a judge and stamped by the court.
  • Proof of receipt of alimony and/or child support payments: In order for alimony and/or child support to be accepted as qualified income, you must be able to fulfill the “6/36 rule”. You must show you have received each payment consistently and on time for at least the previous 6 months and demonstrate that you will receive it for at least 36 more months (3 years) from the signing of your new mortgage. 
  • Proof of age of children for whom child support is paid: As part of the 6/36 rule, you may be required to show legal documentation proving the age of your children, such as a birth certificate, in order to demonstrate they will be eligible for child support for at least 36 more months. 
  • Property Settlement Note income: If a Property Settlement Note is being used as income, this has a more strict requirement. You must demonstrate you have received consistent and on-time payments for the previous 12 months and will continue to receive them for another 36 months from the signing of your new mortgage. 

Reach out to us here at Next Act Properties to see how we can help you with your mortgage financing or other real estate needs during or after your divorce.  

Grossing-up sounds like something disgusting, but we assure you, it will be very beneficial for you!

Here’s what you need to know:

  • Child support payments are not taxable income to the recipient or tax-deductible to the payor.
  • Alimony payments pursuant to a divorce finalized and/or after January 1, 2019, are also not taxable income to the recipient or tax-deductible to the payor. (Alimony payments for divorces finalized prior to January 1, 2019, are taxable income to the recipient and tax-deductible to the payor unless the Divorce Settlement Agreement states otherwise.)
  • Property Settlement Note payments are also not taxable income to the recipient. However, any interest being paid on the note is considered taxable income to the recipient and therefore is tax-deductible to the payor. (FYI, if a Property Settlement Note is going to be used as qualified income, it follows a more stringent requirement than child support or alimony. You must demonstrate you have received consistent and on-time payments for the previous 12 months and those payments will continue for another 36 months).

So, what exactly does grossing-up mean?

In essence, grossing-up converts non-taxable income into the higher amount it would have been if it was taxable income. We do this because lenders consider your gross income (income before taxes) when determining your eligibility for a mortgage.

For mortgage purposes, you can gross-up Child Support, non-taxable Alimony, and Property Settlement Note payments by 25% for conventional loans (Fannie Mae and Freddie Mac) and VA loans and by 15% for FHA loans (other non-taxable income such as disability payments can also be grossed-up).

For example, $1000/month in child support becomes $1250/month for a conventional mortgage, but only $1150/month for an FHA mortgage.

Those higher income amounts can help you better qualify for the mortgage or refinancing you’re looking for, but remember the 6/36 rule we previously wrote about and the 12/36 rule for Property Settlement Notes we mentioned earlier in this article still apply.

How We Can Help You

As you can see, it is very important you work with a divorce mortgage expert who knows all the tools of the trade to get you the mortgage financing you need.

Please contact us for more information.

If you are divorced or are going through a divorce, you might assume that receiving alimony and/or child support payments will qualify as income to refinance your current mortgage or get a new one.

Unfortunately, you may discover that is not necessarily true.

Requirements for Alimony and/or Child Support to be Considered Qualified Income for a New Mortgage or Refinancing

In general, the alimony and/or child support you are or will be receiving will only qualify as income if:

  1. It is subject to a Divorce Decree or a Divorce Settlement or Separation Agreement and, in general,
  2. It passes the “6/36 rule.” This rule applies separately to the alimony payments and the child support payments. You must be able to prove you have consistently received each payment separately for at least the previous 6 months and that you will continue to receive each for at least 36 more months (3 years) from the date of the closing.

In order to prove the 6/36 rule, you will have to show that payments were consistently received on time for the previous 6 consecutive months using bank account statements, deposit slips, or some other proof of receipt. You will also be required to provide the Divorce Decree, Divorce Settlement, or Separation Agreement that stipulates the amount and duration of Alimony and/or Child Support, along with evidence of your children’s ages (birth certificates) to show that they will be young enough for you to continue to receive Child Support for at least 3 more years after closing. (The age of emancipation – when child support is no longer required to be paid – is typically 18 or 21 in most states.)

If you are also receiving payments as part of your divorce under a Property Settlement Note (for your share of a business or other property), you must show evidence that you have received the payments consistently and on time for at least the previous 12 months and that you will continue to receive those payments for at least 36 more months from the closing. You could call this the “12/36 rule” for Property Settlement Note payments.

Click Here to Learn More About Child Support, Alimony, and Property Settlement Note Payments.

How We Can Help You

These are just some of the many unique aspects of refinancing your current mortgage or getting a new mortgage if you are divorcing or divorced.

Unfortunately, many divorce attorneys, loan officers, and mortgage brokers are not familiar with all the nuances of mortgage financing in the context of divorce. (There are many others and we will write about them in future articles.)

Ideally, you want to structure your Divorce Settlement Agreement in the best way possible so you will not have any obstacles when trying to refinance your current mortgage or get a new one.

Therefore, it is very important that you work with a divorce mortgage expert during the divorce process and not after your divorce is finalized when it will be very difficult, if not impossible, to make any changes. Please contact us for more information.