I have an applicant who pays $200 more a month than the child support order directs, which he has been doing for a few years. Do I include the additional $200 in the debt to income ratio?
Although this voluntary, regular, monthly payment is not required to be included in the in the monthly obligations, you may do so and still comply with Agency Underwriting guidelines. This is a perfect example of a compensating factor, meaning the applicant qualifies and meets the debt to income ratio guidelines while also including a regular and voluntary monthly payment that is not described as a legal obligation.
When an applicant is required to pay alimony, child support, or maintenance payments under a divorce decree, separation agreement, or any other written legal agreement (and those payments must continue to be made for more than ten months), the payments must be considered as part of the borrower’s recurring monthly debt obligations.
FHA, VA, FNMA and FHLMC do not require voluntary payments to be taken into consideration.
Document the file with the appropriate legal documents to support the legal obligation. When that obligation will be met, or expires, is crucial. A letter of explanation from the borrower may be requested by an underwriter as a best practice, so the next person touching the file can see this issue was addressed and explained.
Director/Underwriting Operations ComplianceLenders Compliance Group