New Alimony Rule Will Help More Borrowers Qualify

New Alimony Rule Will Help More Borrowers Qualify

Let’s see how alimony calculations have become more friendly for the former spouse paying their ex-spouse.

Fannie Mae recently made it acceptable for lenders to decrease a borrower’s income by the amount of the alimony as opposed to including it to his or her debt-to-income ratio, which made it harder to qualify for financing. This move is going to make a huge difference for many borrowers.

Let me offer you an example:

Denver residents Ken & Debra have been married for 15 years and they have just finalized their divorce.

1) Ken makes $12,000 per month and he has been ordered to pay his ex-wife Debra monthly alimony of $3,000 for five years.

cherry creek condo
2) Let’s presume Ken wants to buy a condo in Cherry Creek for $615,000, with a 20 percent down payment and financing $492,000. His interest rate will be 4 percent and he will pay $400 in monthly homeowners association dues. His monthly house payment that covers P.I.T.I will be about $2,749.

DEBTS:

$3,166  PITI (Principal,Interest,Taxes,Insurance)

$1,000 Credit Cards / Car Loan / Student Loan

$3,000   Alimony Payment

$7,166 Total Debt

60% DTI (debt to income ratio:  $7166/$12000)

 

NEW METHOD EXAMPLE

Gross income

$12,000 per month

($3,000) per month alimony is now allowed to be deducted from gross income

$9,000 total income to qualify

 

DEBTS

$3,166 PITI Subject

$1,000 Revolving Credit / Installment / Student Loan

$4,166  Total Monthly Debt

46 DTI (debt to income: $4166/$9000 = 46)

A 46 DTI is allowed under Conventional loan rules since they now permit up to a 50 DTI.

Ken is now able to buy a that condo since his income to debt ratio is acceptable under Fannie Mae guidelines. He is now OK to search for a condo, townhouse or single-family home in the Greater Denver area.

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