November 13, 2015
FHA loan rules in HUD 4000.1 have requirements for the lender to follow when it comes time to verify income. One type of income the lender may need to verify is disability income from SSI, the VA, or private disability benefits. HUD 4000.1 has this to say about this type of income, starting with a basic definition of terms:
“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.” The timing of such benefits is crucial, as 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.”
What about benefits that don’t expire?
“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.”
Documentation of these benefits, regardless of the source, is required. An award letter or other paperwork may be needed, so borrowers should anticipate having to provide it. The nature of the specific documentation your lender will need varies depending on the type of benefits. In most cases you will need to provide tax return data that shows these benefits as having been paid or awarded, so that is an additional detail to be aware of when planning your FHA loan application.
We’ll cover the specifics of each one of these types of benefits and how the lender must document them in an upcoming blog post.
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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