Alimony is a legal obligation for one spouse to provide financial support to their former spouse after a divorce. It can affect various aspects of a Rhode Island divorcee’s financial life, including their ability to qualify for a mortgage.
Income considerations
Mortgage lenders assess a borrower’s income to determine their ability to repay a loan. If you are paying alimony, it can reduce your overall income available for mortgage payments.
Lenders typically use the borrower’s gross income to determine their borrowing capacity, but alimony payments are considered a deduction from gross income. This effectively lowers your income, potentially reducing the size of the loan that a borrower may qualify for or requiring them to provide additional documentation to support their income.
Alimony payment duration
If you are receiving alimony, it can be counted as income to qualify for a mortgage. However, lenders typically require borrowers to demonstrate that the alimony payments are likely to continue for a significant period of time, usually three years or more, before considering it as qualifying income. Borrowers receiving alimony may need to provide evidence of a court order or legal agreement outlining the terms and duration of the alimony payments.
Debt-to-income ratio
In addition to income considerations, alimony can also impact a borrower’s debt-to-income (DTI) ratio, which is the ratio of a borrower’s monthly debt payments to their gross monthly income. If you are paying alimony, there is an increase in your debt obligations, which can result in a higher DTI ratio. A higher DTI ratio may make it more challenging to qualify for a mortgage as lenders typically have limits to the DTI ratios they are willing to accept.
Divorce affects all aspects of your financial life. Whether you are paying or receiving alimony, it’s crucial to understand how it may affect your eligibility so that you can navigate the process successfully.
