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.
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.
