Other Sources of Income for Qualifying

Verification of other “sources of income” is often critical to obtaining a mortgage. Other sources of income, such as child support and alimony, can be used to qualify for a mortgage. However, you must be able to document that the payments will continue for at least two years in most cases, and then you must be able to prove that payments are being received regularly.

In the case of child support a divorce decree will normally identify the children for whom the payments are being received, how much is to be paid, and for how long. Most divorce decrees identify the children and their birthdates along with an age or time through which the payments will be made. This should be at least two years if you need the payments in order to qualify.

In the case of alimony, the same principles apply. The decree should identify when payments are to start, the amount of the payments, and when they will stop. Once again, to be used as income for qualifying, the payments should have at least two years remaining. Lump sum alimony isn’t normally counted as recurring income even though alimony is treated as income for the tax period received; if it is a lump sum payment it is not regular income that can be used for qualifying unless it will be received at regular intervals in the future, such as annual installments.

Fannie Mae and Freddie Mac normally require proof that the party obligated to make the payments does in fact have the means and intentions to pay. This is verified with documentation that shows the actual receipt of the funds for the most recent three months. Cancelled checks or bank statements for the last three months showing the actual deposits will suffice. It is crucial that you deposit the actual amount indicated on the divorce decree at regular intervals to prove that the funds are regularly available for use to pay your obligations. I recommend that you make copies of the actually check before you deposit it and keep these copies with your deposit receipt and actual bank statements together in a safe place. If these payments are made through the courts or a government agency, a printout showing the actual payments can be used for income verification.

Your Credit Score

In today's mortgage market your credit score is extremely important. I am sure that you have heard that low down payment loans are not even possible unless you go FHA. That is not true. A person with a solid credit score (740 or better) can still purchase a home at the prevailing low 30-year rate with just 5% down.

Why is this important? Well, many lenders are steering their borrowers to FHA, which is a government backed loan. FHA has established the maximum loan for a purchase at $271,050. FHA has a system by which they have identified geographical areas where this amount can be exceeded. For instance, they allow purchase loans up to $353,750 in the Orlando, FL area and up to $387,500 in the Jacksonville, FL area.

You can find the limit for your area at https://entp.hud.gov/idapp/html/hicostlook.cfm.

FHA allows a maximum mortgage amount of 97.75% of the lower of the purchase price or the appraised value. However, you must pay an upfront mortgage insurance premium of 1.75%. This premium is not refunded if you sell. You can receive a partial refund if you should refinance anytime during the first three years, however the credit is applied to the new upfront premium required and not refunded directly to you.

Finally, you need to know that you will be required to pay 0.55% of the original loan amount in annual FHA mortgage insurance premium, which is divided by 12 and paid monthly with your loan payment.

Contrast this scenario with a person who borrowers 95% and pays an upfront mortgage insurance premium of only 1.25% and then pays only 0.13% of the original loan amount in an annual premium. This can be done on any conventional loan in which the loan amount amount does not exceed $417,000.

So if you have good credit, you can still buy that nicer house now at a low 30-year fixed rate!

Current Mortgage Market

Today's home lending market in states like Florida has become extremly complex and difficult. My partner and I have over 50 years combined experience in the mortgage business in North Florida, and we both agree that today's market is the toughest we have ever experienced. Come to us for experienced expertise in home lending and credit repair. We are getting the job done and closing deals to the mutual benefit of Buyers, Sellers, Builders, and Realtors.