The U.S. Federal Reserve raised its key, Federal Reserve Funds Rate (Fed Funds) .25% on Monday, March 13th, 2017 for the second time this year, citing economic growth, job gains and confidence.
Then the mortgage market did something odd. Mortgage rates dropped. The yield on the 10 year US treasury peaked at 2.60% the day the FOMC chair, Janet Yellen announced the Federal Reserve would raise its key Fed Funds rate to 1.00%, from .75%.
The reason? Consumer debt gets pricing from DC and mortgages get their pricing from Wall Street. Fed Funds is the interest rate the Federal Reserve changes its member banks for short term loans. There is no direct correlation between the Federal Reserve raising rates and mortgage rates.
So in other words, Fed Funds going up has an effect on your credit card rates and consumer loan rates, rates tied to the prime lending rate, but not mortgage rates.
Quite often we see mortgage applicants, generally single mothers applying for financing that have income from a job and child support. Sometimes, the child support is the make or break item that is the difference in qualifying the applicant for a home loan.
However, due to the inconsistent nature inherent in some child support relationships, there are a number of rules that apply to getting the child support payments to qualify as income for a mortgage applicant.
Below are 4 tips to use in advance of your mortgage application to make sure child support income can be included by your mortgage lender.
1. 6 Months Backwards
In order for child support income to be considered, we must ba able to document a 6 month history of receipt. This is due to so many parents not making the required child support payments. Proving receipt for 6 months can be problematic though. In some cases where child support is administered by the state government, for example, state of MO Child Support Enforcement has a link to document payment history of their cases, which is available at https://dssapp.dss.mo.gov/payments/WbMdi3OrdersByCaseListSvr.ASP Each recipient is required t to obtain an 8 digit key code to access their account.
2. 3 Years Forwards
Also, like most income that is not directly derived from work, the rule of thumb to qualify for a mortgage is to show that the income stream will continue for at least 3 more years. Effectively, this means the children for which the borrower receives financial support can’t be any older than 15 at the time of application.
3. Check Please!
If not paying via some online vehicle, try to be paid by check. It helps if there is a copy of the check which can be verified with the deposit receipt on the bank statements.
4. Deposit the check quickly, by itself and whole
The child support check should be deposited as quickly as you receive it, and should be deposited by itself and do not take any cash out of the deposit. So in other words, don’t hold on to the check to deposit with a payroll check and don’t take cash from the deposit.
So, for example, Sally, who lives in Warrenton, collects child support of $1,100 per month is paid by check for 2 children ages 12 and 10. She regularly copies the front of the check and deposits the check by itself and whole. A mortgage company will be able to use this as income towards qualifying for her mortgage by producing 6 months of bank statements and copies of the checks showing a check for $1,100 and deposits for $1,100.
To conclude, it is possible to include child support as income toward qualifying for a mortgage application. It does take some planning and documentation.
If you have anymore questions or want to discuss this further, please feel free to reach out to Jayson Hardie at 636-256-5712, it costs ZERO to find out!
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