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Divorce and Mortgage Qualification

Divorce affects mortgage qualification through multiple channels: alimony and child support can serve as qualifying income if received consistently for at least six months with three years of documented continuance, court-ordered alimony and child support payments are counted as debts in the DTI calculation, and jointly held mortgages remain the liability of both spouses until refinanced regardless of what the divorce decree orders.

Key Takeaways

  • Alimony and child support received by the borrower can count as qualifying income with 6-12 months of documented receipt and evidence of at least three years of remaining continuance.
  • Court-ordered alimony and child support payments made by the borrower are included in the DTI calculation at the full ordered amount, regardless of informal arrangements.
  • A divorce decree assigning a mortgage to one spouse does not release the other spouse from the note; only refinancing or loan assumption removes liability.
  • A quit claim deed transfers property ownership but does not remove a person from the mortgage note, leaving the departing spouse fully liable for the debt.
  • Refinancing to remove an ex-spouse requires the retaining spouse to qualify independently on their own income, credit, and assets.
  • Fannie Mae treats a refinance to buy out an ex-spouse's equity as a limited cash-out refinance with more favorable terms than a standard cash-out transaction.
  • Non-taxable alimony and child support income may be grossed up by 25% for qualification purposes, improving the borrower's effective DTI ratio.
  • Property settlement installment payments extending beyond 10 months are counted as recurring debts in the conventional DTI calculation.

How It Works

How Alimony and Child Support Income Is Verified

The lender begins by reviewing the divorce decree, separation agreement, or court order to confirm the type of payment (alimony, child support, or both), the monthly amount, the start date, and the end date or duration. The lender then calculates whether the remaining duration meets the three-year continuance requirement. If the payment ends within three years of the mortgage closing date, it cannot be used as qualifying income.

Next, the lender verifies actual receipt through bank statements, deposit records, or other financial documentation covering the most recent 6 to 12 months. The lender compares the deposits against the court-ordered amount. If payments have been received in full and on time, the income is accepted at the court-ordered amount. If payments have been sporadic or for less than the ordered amount, the lender may use an average of the amounts actually received, or may decline to use the income entirely if the payment history is too inconsistent.

For non-taxable alimony and child support (applicable to divorce agreements finalized after December 31, 2018), the lender may apply a gross-up factor of up to 25%, which increases the qualifying income. For example, $2,000/month in non-taxable alimony becomes $2,500/month after a 25% gross-up, providing additional DTI capacity for the borrower.

How Existing Joint Mortgages Are Handled in Qualification

When a borrower applies for a new mortgage and has an existing joint mortgage from a prior marriage, the lender must determine how that existing mortgage payment is treated in the DTI calculation. If the divorce decree assigns the home and mortgage to the former spouse, the borrower can request exclusion of the payment from their DTI. The lender requires the divorce decree showing the assignment plus 12 months of documented payments by the former spouse from the former spouse’s own accounts.

If the documentation is available and satisfactory, the existing joint mortgage is excluded from the borrower’s DTI. If the documentation is not available (for example, the divorce was recent and 12 months of post-divorce payments have not yet occurred), the full mortgage payment is included in the borrower’s DTI. This is true even if the borrower is no longer living in the property and has no intent to make the payment. The lender’s concern is that the borrower remains legally liable for the debt until it is refinanced.

How the Buyout Refinance Works

The retaining spouse applies for a refinance as if it were a standard mortgage application, providing income documentation, credit report authorization, and asset statements. The appraisal establishes the current market value of the property. The new loan amount equals the existing mortgage balance plus the equity owed to the departing spouse, plus any applicable closing costs if financed.

The title company disburses the proceeds at closing: the existing mortgage is paid off, the departing spouse receives their equity share, and the retaining spouse signs the new note as the sole borrower. The departing spouse simultaneously executes a quit claim deed or warranty deed transferring their title interest to the retaining spouse. After closing, only the retaining spouse appears on both the new mortgage note and the property title, and the departing spouse’s credit report no longer shows the mortgage obligation.

Related topics include co-signers and co-borrowers on a mortgage, recent job change, relocation, and employment gaps, buying a home after a major credit event, and special borrower situations: a decision guide.

Key Factors

Factors relevant to Divorce and Mortgage Qualification
Factor Description Typical Range
Alimony/Child Support as Income
Alimony/Child Support as Debt
Joint Mortgage from Prior Marriage
Property Settlement Payments

Examples

Scenario: Borrower using alimony and child support as qualifying income
Outcome: The $1,800 alimony and $1,000 child support are grossed up by 25%: $1,800 x 1.25 = $2,250 and $1,000 x 1.25 = $1,250. Total qualifying income: $4,200 + $2,250 + $1,250 = $7,700/month. Back-end DTI: ($350 + $150 + $1,900) / $7,700 = 31.2%. Without the alimony and child support income, DTI would be ($350 + $150 + $1,900) / $4,200 = 57.1%, which exceeds all program limits. The alimony and child support income makes qualification feasible.

Scenario: Departing spouse unable to qualify due to undischarged joint mortgage
Outcome: Because only 4 months of post-divorce payments are documented (12 months required), the existing $2,100 joint mortgage cannot be excluded from Spouse B's DTI. Back-end DTI: ($400 + $2,100 + $1,800) / $6,000 = 71.7%, which exceeds all program limits. Spouse B must wait until 12 months of payments by Spouse A are documented, or until Spouse A refinances to remove Spouse B from the existing mortgage note.

Scenario: Buyout refinance to remove departing spouse
Outcome: Fannie Mae treats this as a limited cash-out refinance because the cash-out is for the divorce equity buyout. LTV: $310,000 / $380,000 = 81.6%. PMI is required but at limited cash-out pricing, which is more favorable than standard cash-out rates. Spouse A's DTI: ($500 + $2,350) / $7,500 = 38.0%, which is within conventional limits. At closing, $240,000 pays off the old mortgage, $70,000 goes to Spouse B, and Spouse B signs a quit claim deed. Both spouses are released from the old note and Spouse A is the sole borrower on the new loan.

Scenario: Quit claim deed without refinance creating ongoing liability
Outcome: Despite having no ownership interest, Spouse B remains on the mortgage note and is equally liable. The missed payments are reported on Spouse B's credit report, reducing their credit score. The lender can pursue Spouse B for the full balance. Spouse B's only options are to bring the payments current (on a property they do not own), negotiate with the lender, or face foreclosure on their credit record. This scenario demonstrates why a quit claim deed without a refinance provides no financial protection to the departing spouse.

Common Mistakes to Avoid

  • Believing a divorce decree removes a spouse from the mortgage note
  • Applying for a mortgage before receiving the required months of alimony or child support documentation
  • Failing to account for child support or alimony obligations in the DTI calculation when estimating affordability
  • Signing a quit claim deed without first refinancing the mortgage
  • Agreeing to a divorce settlement deadline for refinancing without confirming qualification ability
  • Not disclosing divorce-related obligations on the mortgage application
  • Using child support income that will end within three years of closing

Documents You May Need

  • Final divorce decree, separation agreement, or court order documenting all financial terms (alimony, child support, property division, debt assignment)
  • Documentation of alimony and child support receipt: 6-12 months of bank statements showing regular deposits matching the court-ordered amount
  • Documentation of alimony and child support payments: court-ordered amount reflected in the divorce decree for DTI inclusion
  • Property settlement agreement detailing any installment payments, lump sum obligations, or equity division
  • Quit claim deed or warranty deed (if property title has been transferred as part of the divorce)
  • 12 months of payment records from the former spouse's account (if seeking DTI exclusion for a joint mortgage assigned in the divorce)
  • Appraisal of the marital property (if refinancing for a buyout)
  • Proof of income: pay stubs, W-2s, and tax returns reflecting the borrower's post-divorce financial situation
  • Court documentation of any modifications to alimony or child support amounts since the original decree

Frequently Asked Questions

Can I use alimony as income to qualify for a mortgage?
Yes, if you can document consistent receipt for 6-12 months and the obligation continues for at least three years from the anticipated closing date. You must provide the divorce decree establishing the payment and bank statements or other records showing regular receipt at the court-ordered amount. Non-taxable alimony may be grossed up by 25% to increase qualifying income.
Does a divorce decree remove my name from the mortgage?
No. A divorce decree is a court order between the spouses and does not bind the mortgage lender. The mortgage note is a separate contract, and only the lender can release a borrower from the note. Removing your name requires refinancing by the retaining spouse, a formal loan assumption, or paying off the mortgage. The divorce decree may order your ex-spouse to refinance, but the lender is not obligated to comply with the court order.
How does paying child support affect my mortgage qualification?
Child support paid by the borrower is included in the DTI calculation at the full court-ordered monthly amount. For a borrower earning $7,000/month and paying $1,200/month in child support, the child support alone consumes 17.1% of gross income before any other debts are counted. This reduces the maximum mortgage payment you can qualify for within standard DTI limits.
What is a quit claim deed and does it release me from the mortgage?
A quit claim deed transfers your ownership interest in a property to another person. It removes you from the property title. However, it does not remove you from the mortgage note. You remain fully liable for the mortgage debt even after signing a quit claim deed. The only way to eliminate your liability is for the mortgage to be refinanced, assumed without you, or paid off.
Can I buy a new home while my name is still on my ex-spouse's mortgage?
Yes, but the existing mortgage will be included in your DTI calculation unless you can provide 12 months of documented payments by your ex-spouse from their own account, along with the divorce decree assigning the home and mortgage to them. Without this documentation, the full existing mortgage payment counts against your DTI, which may prevent you from qualifying for a new mortgage.
How does a buyout refinance work in a divorce?
The spouse retaining the home refinances for an amount equal to the current mortgage balance plus the departing spouse's equity share. The refinance proceeds pay off the existing joint mortgage and distribute the equity buyout to the departing spouse. Fannie Mae treats this as a limited cash-out refinance (with more favorable terms) when documented as part of a divorce settlement. Both spouses must qualify and the property must appraise at sufficient value.
Is child support income grossed up like alimony?
Yes. If child support is non-taxable income to the recipient (which it is regardless of when the divorce was finalized), lenders may apply a 25% gross-up factor. A $1,000/month child support payment could be counted as $1,250/month for qualification purposes. Not all lenders apply the gross-up, so confirm your lender's policy during the pre-approval process.
What if my ex-spouse was ordered to pay the mortgage but stopped paying?
If your ex-spouse was assigned the mortgage in the divorce decree but stops making payments, the lender can pursue you for the full balance because you remain on the note. The missed payments will appear on your credit report. Your legal remedy is to enforce the divorce decree through the family court, but this does not prevent the immediate credit damage. This is why refinancing to remove the departing spouse from the note is the recommended approach.
How long after a divorce should I wait to apply for a mortgage?
There is no mandatory waiting period, but practical considerations often dictate timing. If you plan to use alimony or child support as qualifying income, you need 6-12 months of documented receipt. If you need a joint mortgage excluded from your DTI, you need 12 months of payments by your ex-spouse. If your credit was affected during the divorce process, you may need time to rebuild scores. Many borrowers find that 12-18 months after the divorce is final provides sufficient time to establish the documentation needed for a strong application.
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