An issue has come to my attention, and I welcome feedback from anyone on this topic but I would especially like to hear from CPA's and loan officers.

When you apply for a mortgage loan or similar investment, the financing institution will most likely be interested in your DTI (Debt to Income Ratio).  For many lenders, this figure determines if you should be able to afford a new loan given the new payment amount.  For most lenders, they would like to see the ratio of all of your monthly debt obligations (mortgage & interest + realestate taxes + car loan payments + student loan payments + child support payments + etc..) to your gross monthly income to be no greater than 36%.  Since child support for payors is essentially a fixed monthly cost, it seems obvious to the laymen that this reduces your monthly income.

Step back for a minute and ask yourself a few questions - where did the 36% come from?  Why has my child support been included as "debt"?  Is there a question in the application for the loan that asks married parents how many children they have?  If families have children, is their monthly income reduced because of it?

The 36% is a number that attempts to account for the fact that most people have utility payments, most people have to purchase food, and most people have a kid or two that they must provide for.  Wait - the 36% accounts for kids already?  That's right, not only are child support payors using the 36% number, they are also required to show a lower monthly income because they pay monthly child support.

So how does this affect your loan?  The amount of money you can finance is calculated based on the 36% value.  Further, as you approach the 36% number, the interest rate usually increases because lenders feel it is a higher risk.

What about the other parent?  Is the payee getting credit for child support?  Absolutely!  Payees of child support are allowed to add this amount as income when they apply for a loan.  Lenders are assuming this is actual money that can be spent on the home rather than the child.  In the state of Kansas, this is partially true, BUT only a portion of child support goes to increase a lower income earning parent's financial well being. 

To check this out, assume two divorced parents buy homes next door to each other.  Both make the same wage, both drive the same car both homes cost the same and the child spends the same amount of time with both parents.  In Kansas someone is going to pay someone for child support - that's just how the child support committee sees it should be done (yes it's BS).  The paying parent (Dad) now has to show a lower income and thus will not be able to finance the home the same as Mom.  Mom gets credit for the child support so she can finance the home at a better interest rate, and will not have to come up with additional cash if the DTI is high.

To be continued....

Similarly, if a NCP (Dad) has to secure enough rooms/beds for 3 kids who "visit," but  a good portion of his check goes to the ex, if he applies for housing assistance, he has to claim his total income. NOT income less child support.

GURU - We have had this conversation before in another thread.

The reason Child Support is considered a debt and the tax consequences to both parties are determined by FEDERAL laws about taxation and the relationship between a Child Support and Federal tax codes.

I also think this isn't right and here's why.  When child support is figured, they come up with the amount for the month for the child.  That number is then broken down to what each parent is responsible for, obviously the parent the child is residing with isn't paying themselves so they don't have to put their portion as a debt.  So in a way I don't think the one paying should have to use theirs as well.  Because if they honestly aren't paying consistently like they should there is probably a high amount in arrears which is put on their credit report for all to see and I'm assuming would be a red flag for any lender.  Just my opinion.