February 17, 2016
We’ve gotten several questions recently in the comments section about FHA home loans and using Social Security income to qualify. Many of the questions basically ask the same thing–does the FHA permit Social Security income to be used? Can a borrower qualify for an FHA mortgage when Social Security is a major portion of the income?
The answer to the question “Do I qualify?” depends on the borrower’s other financial qualifications and an additional factor we’ll explore in a moment. The general answer is that the FHA does NOT view Social Security income as a liability for loan approval, but that income must meet certain standards and requirements.
HUD 4000.1 instructs the lender on how to consider Social Security income, which falls under a heading the FHA terms “Disability Benefits”. These benefits are defined by the FHA as, “Disability Benefits are benefits received from the Social Security Administration (SSA), Department of Veterans Affairs (VA), other public agencies, or a private disability insurance provider.”
“The Mortgagee must verify and document the Borrowers receipt of benefits from the SSA, VA, or private disability insurance provider. The Mortgagee must obtain documentation that establishes award benefits to the Borrower.”
FHA loan rules add that if a borrower’s disability income is due to expire, “within three years from the date of mortgage application” the income cannot be counted towards the borrower’s debt-to-income ratio as “effective income”.
The lender will examine a borrower’s Notice of Award to find an expiration date. But what if there is no expiration date stated on that notice?
“If the Notice of Award or equivalent document does not have a defined expiration date, the Mortgagee may consider the income effective and reasonably likely to continue. The Mortgagee may not rely upon a pending or current re-evaluation of medical eligibility for benefit payments as evidence that the benefit payment is not reasonably likely to continue.”
The lender may not question the borrower on the nature of his or her disability, or his or her medical condition. In order to properly verify disability pay or benefits, the lender may request tax returns or other supporting documentation as part of the application process.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
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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