Did you know that FHA will allow the lender to deduct the monthly alimony payment from the borrower’s gross monthly income when calculating ratios??
What does this mean???
Because of the tax consequences of alimony payments, FHA guidelines permit the lender to deduct the monthly alimony payment from the borrower’s gross monthly income before calculating ratios, rather than including the alimony payment with other monthly liabilities.
This can make a huge difference in qualifying ratios. With the higher loan limits available in many areas today, borrowers who owe monthly alimony payments, who will not qualify for a Conventional loan, may now be switched to an FHA loan.
Example:
A borrower is making $5000 in gross monthly income. The total PITI mortgage payment, combined with consumer debts, plus $800 in monthly alimony, totals $2300
$2300 total debt/$5000 gross monthly income = 46% debt to income ratio.
If the borrower switches to an FHA loan, here is how it will be handled:
$5000 gross monthly income minus $800 alimony payment = $4200 net income.
$2300 total monthly debts minus $800 alimony payment = $1500 monthly debts.
$1500 monthly debts/$4200 net income = 35.71% debt to income percentage!
The debt to income ratio was reduced by 10% using the FHA formula For borrowers with monthly alimony payments!!!
If you know someone making alimony payments, I advice them to consider a FHA mortgage loan when looking for mortgage financing.
