How Child Support Can Affect Your VA Loan

Divorce can be a complicated and messy part of life. It can also create some potential complications when it comes to looking for a VA home loan.

Lenders can count child support payments as effective income toward a mortgage, which can help Veterans qualify for a higher loan amount. But spouses who are paying that monthly support will have that money counted as an outgoing liability by mortgage lenders.

For prospective VA borrowers who are divorced, child support can sometimes play a make-or-break role in the loan process.

VA Loan Child Support Income Guidelines

When it comes to VA loans and income, lenders are always looking for three key attributes: stable, reliable and likely to continue. Child support can be counted as stable and reliable income for prospective borrowers, but it may need to meet certain criteria.

Here's a look at some of the primary considerations:

• In some cases, a court must have ordered child support payment. Guidelines and policies on this can vary by lender.
• Lenders will typically want to make sure there's no indication the income will stop within the next three years.
• The lender will likely require a "seasoning" period. This basically means the lender will want you to receive child support for a certain number of months before you can count it as effective income. Seasoning periods can range anywhere from three months to a full year, depending on the lender and even the type of underwriting procedures a lender uses.
• The child support you receive is generally non-taxable income. Consult with your lender to see if your child support income can be "grossed up," which may help lower your debt-to-income ratio.

Be prepared to provide documentation of child support. This can be achieved by providing a child support order or divorce decree. If you don't have these papers ready when you complete your loan application, work on obtaining them immediately. You don't want to delay your closing by gathering these documents last minute.

VA Loans and Child Support Arrears

Paying child support compared to receiving it can be a major factor when applying for a VA loan. Child support is a regular installment payment lenders will count when calculating your debt-to-income (DTI) ratio and your residual income.

Child support that's in arrears is typically considered derogatory credit. Lenders often have a cap on the amount of derogatory collections a prospective borrower can have, which means getting behind on payments can jeopardize loan eligibility. Most of the time, child support in arrears will have to be paid in full before a VA loan can close.

If you are paying child support, be prepared to provide your loan expert with documentation of this liability, such as your judgment, any subsequent modifications and proof of payment amounts.

Alternatively, if you are no longer required to pay child support, you will still need to show documentation of the original order along with documentation of when the liability ceased. If you do not have a specific order terminating the child support order, you may be asked to provide a letter explaining the situation.

Working Around Child Support Payments

If you are struggling to qualify for your dream home due to high child support payments, it may be worth considering a lower loan amount. This will reduce your monthly mortgage payment, which, in turn, lowers your overall debt and increases your residual income level.

While looking for homes in a lower price range is not ideal, it's often the only option unless you can muster another income stream.

Talk to a Veterans United VA Loan Expert about child support and your VA loan opportunities at 855-870-8845.