In general, child support payments and maintenance payments are considered by the FHA to be a “recurring liability” and that financial obligation is included in your debt-to-income ratio.
On the other hand, if you're the one making alimony or child support payments, this counts as recurring debt. It's a good idea to calculate your DTI and keep it under 43% when you apply for a mortgage. You'll also want to be sure your credit score is in tip-top shape and that you have enough money for a down payment.
What payments should not be included in debt-to-income ratio? Expand. The following payments should not be included: Monthly utilities, like water, garbage, electricity or gas bills.
Although child support doesn't generally count towards income on tax returns, when it comes to applying for a loan or mortgage, it is possible to use child support payments towards your total income. When you apply for a mortgage loan, child support or alimony payments can be added to your earned income in some cases.
A lender or broker may ask whether income stated in your application comes from alimony, child support, or separate maintenance payments. However, the lender or broker must tell you that you do not have to reveal such income if you do not want it considered.
You may be surprised to learn that child support is not actually considered income. The State of California recognizes that parents have a responsibility to financially support their children.
Your debt-to-income ratio (DTI) compares how much you owe each month to how much you earn. Specifically, it's the percentage of your gross monthly income (before taxes) that goes towards payments for rent, mortgage, credit cards, or other debt.
Your DTI, or debt-to-income ratio, is based on two numbers: Your total recurring monthly debt payments, including student loans, minimum credit card payments, auto loans, child support, alimony, etc. This does not include any non-debt related payments such as rent, groceries, entertainment, utilities, etc.
Key Takeaways
Income excluded from the IRS's calculation of your income tax includes life insurance death benefit proceeds, child support, welfare, and municipal bond income. The exclusion rule is generally, if your "income" cannot be used as or to acquire food or shelter, it's not taxable.
As noted above, consumer debt is any debt accrued to fund a debtor's personal or familial consumption. This includes home mortgages, personal loans, credit card debt, car loans for a personal or family car, and debt owed for child support or alimony are all common types of consumer debt.
USDA Income Eligibility: Qualifying Income
Child support, alimony, or other acceptable sources may also be used. Qualifying income must be adequate and stable. Income can be accepted with as little as one year of history. It must be able to be verified, and likely to continue for at least the next three years.
Some types of bills, such as medical debt, are generally not counted toward DTI. “Typically collection payments do not count toward a debt ratio unless some sort of payment plan is required by the lender,” says Ryan Plattner, a Fairway branch manager in Leawood, Kansas.
As a general guideline, 43% is the highest DTI ratio a borrower can have and still get qualified for a mortgage. Ideally, lenders prefer a debt-to-income ratio lower than 36%, with no more than 28%–35% of that debt going toward servicing a mortgage.
If your monthly income is $2,500, your DTI ratio would be 64 percent, which might be too high to qualify for some credit cards. With an income of roughly $3,700 and the same debt, however, you'd have a DTI ratio of 43 percent and would have better chances of qualifying for a credit card.
It does not include health insurance, auto insurance, gas, utilities, cell phone, cable, groceries, or other non-recurring life expenses. The debts evaluated are: Any/all car, credit card, student, mortgage and/or other installment loan payments.
Key takeaways. Debt-to-income ratio is your monthly debt obligations compared to your gross monthly income (before taxes), expressed as a percentage. A good debt-to-income ratio is less than or equal to 36%. Any debt-to-income ratio above 43% is considered to be too much debt.
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.
Child Support - No. Child support payments are not subject to tax. Child support payments are not taxable to the recipient (and not deductible by the payer). When you calculate your gross income to see whether you're required to file a tax return, don't include child support payments received.
Child Support Payments May Count as Income
Child support payments can be added to your regular income from your job or other sources and be used to qualify for a mortgage. These payments boost your overall monthly income, which means you may be eligible for a bigger mortgage than you thought.
Yes, but only if you want the lender or dealer to consider such payments as part of your application for credit. A lender or dealer may ask whether income stated in your application comes from alimony, child support, or separate maintenance payments.
We clarified that lenders may treat 15% of Social Security income and the full amount of qualifying child support income as nontaxable income without having to provide documentation evidencing the nontaxable status. This nontaxable income may then be grossed-up and added to qualifying income.
A person's intent to be a joint applicant must be evidenced at the time of application.
Monthly Payments Not Included in the Debt-to-Income Formula
Cable and internet. Car insurance. Health insurance. Medical bills.