August 16, 2016
A reader asks, “I am halfway though a 15 year mortgage on a 2009 manufactured home. I am disabled, collecting SSD and my wife works as a school teacher.Would I qualify to refinance my home?”
FHA loans and refinance loans have rules that do permit the use of Social Security income to qualify for a loan, provided the income meets certain requirements. The lender is required to determine that the income is likely to continue. HUD 4000.1 has guidelines and instructions to the loan officer that include the following about Social Security and other disability benefits:
“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.”
HUD 4000.1 adds, “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. 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. Under no circumstance may the Mortgagee inquire into or request documentation concerning the nature of the disability or the medical condition of the Borrower.”
HUD 4000.1 also addresses Social Security income specifically:
“For Social Security Disability income, including Supplemental Security Income (SSI), the Mortgagee must obtain a copy of the last Notice of Award letter, or an equivalent document that establishes award benefits to the Borrower, and one of the following documents:
–federal tax returns;
–the most recent bank statement evidencing receipt of income from the SSA;
–a Proof of Income Letter, also known as a Budget Letter or Benefits Letter that evidences income from the SSA; or
–a copy of the Borrowers form SSA-1099/1042S, Social Security Benefit Statement.”
We have covered this issue before, but one very important aspect of this particular reader question that should be addressed is the fact that there are a variety of criteria used to qualify an FHA loan applicant for the mortgage. Your FICO scores, loan repayment history, debt to income ratio and other factors are all weighed by the lender.
No single factor of the loan application data is reviewed as the sole “make-or-break” criteria for loan approval, though one of those areas can and sometimes does disqualify a borrower. If your FICO scores are too low on your credit report, for example, your ability to get a loan may be compromised. But FICO scores alone are not the basis for loan approval. The same goes for other factors including the nature of your income and other issues.
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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