The 6/36 Rule is one of the most common—and avoidable—bottlenecks in equity buyout financing. In the mortgage industry, specifically under Fannie Mae and Freddie Mac guidelines, these numbers represent the strict timelines required to use alimony or child support as qualifying income.
For a homeowner attempting an Equity Buyout (EBO), failing to account for this timeline during mediation can result in a loan denial, even if the settlement is already signed.
1. The “6”: Proof of Consistent Receipt
Before an underwriter can count support as income to debt-to-income (DTI) ratios, the borrower must typically document a six-month history of receipt.
- The Technical Requirement: You must provide bank statements or court-ordered clearinghouse records showing the full amount was paid on time for the most recent six months.
- The Trap: If a spouse has been paying “under the table” or sporadically during the separation without a formal temporary order, that time usually doesn’t count. The clock often doesn’t start until a legal agreement is in place.
2. The “36”: Evidence of Continuance
The “36” refers to the 36-month duration requirement. The income must be legally documented to continue for at least three years from the date of the mortgage application.
- The Technical Requirement: Underwriters review the divorce decree or separation agreement to verify the end date of the support.
- The Child Support Bottleneck: This is where most files fail. If a child is 15 or 16 years old, the support likely ends at 18. This provides only 24 to 30 months of continuance—falling short of the 36-month requirement. In this scenario, that income is legally “invisible” to the mortgage underwriter, which can drastically lower the borrower’s qualifying power.
Strategic Implications for Attorneys
As a technical consultant, this is where your 25 years of experience and underwriter background become invaluable. If the 6/36 Rule isn’t addressed in the settlement structure, the following occurs:
- The “Qualified Income” Gap: The party staying in the house may appear to have plenty of money to pay the mortgage, but on paper, their DTI is too high because the support income can’t be included.
- Settlement Deadlocks: A decree might mandate a buyout within 90 days, but if the “6-month receipt” clock hasn’t started, the borrower is literally incapable of performing under the court’s timeline.
The EBO Solution
Navigating this requires proactive “structural reality.” This might involve:
- Reviewing the age of children early in the process to determine if child support can even be used.
- Structuring temporary orders specifically to start the “6-month” clock as early as possible.
- Exploring alternative income streams or debt-offsetting strategies when the 36-month continuance isn’t met.
For questions about the 6/36 rules, contact Richard @ 602-730-4545