The 6/36 Rule can affect what mortgage lenders will consider qualifying income. Learn more about the 6/36 Rule and how it affects occupying spouses who wish to retain the marital home by reading below.
One significant decision that divorcing parties consider is what to do with the marital home. In general, there are three choices they can make in matters involving parties who want to make a clean break: 1) Keep the house and leave the title and mortgage as they are, 2) Transfer the title to a spouse who can refinance, or 3) Sell it to another owner outright.
For occupying spouses who wish to stay, the relationship between qualified income and the 6/36 Rule is one factor that may determine the outcome.
As a certified divorce real estate (CDRE) expert in the Chicago area, there are a few crucial aspects that every legal professional should discuss with their clients during the process:
Determining affordability is the starting point
Determining if the occupying spouse can qualify to stay in the marital home begins by dividing the shared debts and assigning repayment responsibilities to the appropriate party. After deciding who owes what to whom, they will need to establish who lawfully owns the home.
Questions that come up include:
- Who holds the title in matters of co-ownership?
- If one spouse solely holds the mortgage, can he or she afford the monthly payment?
- How sustainable are support payments, if any?
As you can see, the most recurrent theme of retaining the marital home is a question of affordability. While personal income is a standard determining factor, there are other factors that lenders consider when it comes to defining qualifying income.
Defining the 6/36 Rule
Since alimony and child support payments are generally not indefinite, mortgage companies assess their stability using the 6/36 Rule. They count support payments as qualifying income as long as they meet two factors.
The 6/36 Rule requires your client to demonstrate that he or she has:
- Reliably received support income for at least six months
- Will continue to receive it for at least 36 months after receiving the loan
If your client meets these conditions, then he or she can include support payments as qualifying income when applying for a new loan or refinancing the existing one. However, some exceptions may disqualify him or her from counting support payments when assembling the necessary loan documents.
4 tips for setting clients up for future financial success
While the 6/36 Rule seems pretty straightforward at first glance, there are a few caveats that can affect the outcome of your client’s experience.
Here are a few tips that you can share to ensure that qualifying income is strategically managed in a way that supports your clients’ goal of retaining the family home:
1. Pay attention to the age of minor children
For many divorcing parties, child support payments cease upon shared children reaching the age of 18. Therefore, it is vital to consider the age of minor children as you prepare loan documents since children reaching adulthood in less than 36 months from the date of loan affect qualifying income considerations.
2. Don’t miss any mortgage payments
It is critical to keep making mortgage payments. Staying creditworthy while both parties and their lawyers iron out the details is a priority.
You and your clients have no way to predict the future outcome of the transaction, even if both parties agree to the conditions. There is still a loan officer with whom to contend later on.
3. Document everything
It never ceases to amaze me as to what can come into question when it comes to making decisions regarding real estate during divorce. As a general rule of thumb, keep backed-up copies of all documents, including communications, receipts, and contracts.
4. Never pay mortgage payments or other bills in lieu of support payments
If the spouse paying support payments makes the mortgage payment in lieu of alimony, or spousal support, payments, then those payments will be disqualified from the 6-month timeclock of the 6/36 Rule. Equally, a step-down option that begins before the 36-month mark won’t count either.
Having the Right Divorce Team
Financial matters surrounding divorce are complex. Experienced attorneys and mediators call upon their team of experts to ensure that clients have the valuable input they need to make practical decisions and avoid making mistakes.
For a better result, meeting with a certified divorce lending professional (CDLP) alongside your CDRE will help you identify potential issues regarding support payments and mortgage guidelines in Illinois. Contact me today for more information.