July 19, 2013
A reader asks, “My husband and I have never owned a home. He is a Veteran. He is receiving Social Security. I will also be receiving Social Security.
Would we be able to receive a FHA Loan?”
FHA loan rules do address Social Security income as a potential source of verifiable income that can be used to qualify for an FHA mortgage loan. For example, in HUD 4155.1 in a section titled “Income Analysis: Individual Tax Returns (IRS Form 1040)” we find the following in the section for IRA Distributions, Pensions, Annuities, and Social Security Benefits:
“The non-taxable portion of these items may be added back to the adjusted gross income, if the income is expected to continue for the first three years of the mortgage.”
Also, in a section discussing non-taxable and projected income, FHA loan rules as written in HUD 4155.1 say:
“Certain types of regular income may not be subject to Federal tax, such as
• some portion of Social Security,
• some Federal government employee retirement income
• Railroad Retirement benefits
• some state government retirement income
• certain types of disability and public assistance payments
• child support
• military allowances, and
• other income that is documented as being exempt from Federal income taxes.
The amount of continuing tax savings attributed to regular income not subject to Federal taxes may be added to the borrower’s gross income. The percentage of non-taxable income that may be added cannot exceed the appropriate tax rate for the income amount. Additional allowances for dependents are not acceptable.
The lender
- must document and support the amount of income grossed- up for any non- taxable income source, and
- should use the same tax rate the borrower used to calculate his/her income tax from the previous year.”
So it’s clear that FHA loans do consider Social Security income as verifiable. However, the reader should know that debt-to-income ratios, FICO scores, repayment history and other financial factors also play an important role in FHA loan approval.
The last word on Social Security income comes from HUD 4155.1 Chapter Four Section D which says:
“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.”
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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