August 6, 2013
A reader asks, “I was awarded permanent disability on June 2011; with a ‘long term re-evaluation’ in 5 to 7 years per SS; will the lender under FHA loan qualifications, not be able to decline loan because of said re-evaluation?”
Assuming we understand this reader’s question properly, it seems the issue at hand is whether or not the FHA loan is “guaranteed” to be approved because of Social Security income status. FHA loan rules as written in HUD 4155.1 Chapter Four Section D state that one requirement of FHA loan approval is an examination of income and how likely that income is to continue.
“The lender must analyze the income of each borrower who will be obligated for the mortgage debt to determine whether the borrower’s income level can be reasonably expected to continue through at least the first three years of the mortgage loan.”
Additionally, “Effective income for a borrower planning to retire during the first three-year period must include the amount of
− documented retirement benefits
− Social Security payments, or
− other payments expected to be received in retirement.”
When it comes to Social Security income, HUD 4155.1 Chapter Four Section D states:
“Social Security income must be verified by the Social Security Administration (SSA) or from Federal tax returns. If any benefits expire within the first full three years of the loan, the income may only be considered as a compensating factor.”
“The lender must obtain a complete copy of the current awards letter.
- Not all Social Security income is for retirement-aged recipients; therefore, documented continuation is required.
- Some portion of Social Security income may be ‘grossed-up’ if deemed nontaxable by the IRS.”
Nowhere in these rules does it say that the lender is REQUIRED to approve an FHA loan due to Social Security income…but on the other hand, Social Security income cannot be discriminated against as a valid source of income provided it meets the requirements listed above.
In other words, having Social Security income isn’t a guarantee that an FHA loan will be approved, nor is it a barrier to loan approval. Social Security income must meet the requirements stated above; if it does, the lender may count it as verifiable income for the purposes of approving an FHA loan.
Do you have questions about FHA home loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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