August 17, 2017

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FHA Loans: Can Non-Taxable Income Be Used To Qualify For an FHA Home Loan?

FHA loan rules require the lender to verify income sources listed on an FHA home loan application. Only income that the lender deems stable, reliable, and likely to continue can be used to qualify for the loan.

Because of this, the FHA loan program has rules covering different types of income and what may or may not be used to qualify for the loan. Income that does qualify is used to calculate the borrower’s debt-to-income ratio–a critical part of the loan approval process. Too much debt and not enough income, and a borrower could face being rejected for the FHA mortgage.

One area some borrowers have concerns with is the income from non-taxable sources such as Social Security payments, military allowances, government benefits and other sources. These income sources, when properly verified, can be listed as income, but there are unique circumstances which apply to this income. For example–according to FHA loan rules, “The amount of continuing tax savings attributed to regular income not subject to Federal taxes may be added to the borrower

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