April 20, 2016
FHA loan rules in HUD 4000.1 have requirements the lender must meet for verification of income-a borrower’s income must be considered verifiable in order to be counted in the debt to income ratio. Page 268 of HUD 4000.1 starts off by explaining what the FHA considers disability income:
“Disability Benefits refer to benefits received from the Social Security Administration (SSA), Department of Veterans Affairs (VA), or a private disability insurance provider.”
The lender is required to gather documentation to prove the borrower is receiving such benefits, the duration of them, and whether or not they are likely to continue to be paid. The continuation of the benefits are an important part of this equation:
“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. If any disability income is due to expire within three years from the date of mortgage application, that income cannot be used as Effective Income.”
This raises an important question–what if the borrower’s benefits do not have a specific expiration date? HUD 4000.1 addresses this issue: “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 is NOT required to know WHY the borrower is collecting the benefits, and FHA loan rules state the question cannot be asked. “Under no circumstance may the Mortgagee inquire into or request documentation concerning the nature of the disability or the medical condition of the Borrower.”
The documentation requirements may vary slightly depending on the nature of the benefit payments received, but overall, the lender is required to have documentation within a certain time frame–the most current pay statements, benefits paperwork, or other documents needed are best.
Borrowers who aren’t sure whether their disability pay counts toward their debt to income ratio should have a conversation with the lender to see whether or not their current benefits may or may not meet FHA standards. Additional lender requirements may apply.
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.
Browse by Date: