June 14, 2018
Military borrowers who are considering an FHA home loan may wonder if they are permitted to use their Post 9/11 GI Bill housing stipend as part of their qualifying income for an FHA mortgage.
FHA loan rules found in HUD 4000.1 require the lender to verify all sources of income for the borrower; verifiable income that qualifies may be counted in the borrower’s debt-to-income ratio.
This process is important because if a borrower’s debts exceed a certain ratio compared to the amount of income, it may be harder for the lender to justify approving the FHA mortgage.
So it makes sense that a borrower who qualifies for Post 9/11 GI Bill benefits or Forever GI Bill benefits might want to have their housing stipend included in the income they submit to the lender.
To understand FHA loan policy on this issue, it’s important to understand what the FHA considers to be qualified income. The lender needs to make sure the loan applicant has a source of income that is stable, reliable, and is likely to continue in the future.
That is one reason FHA loan rules say the lender must verify that the borrower generally has two years of employment history at a minimum even if that employment isn’t with the same employer.
For GI Bill housing stipends, a veteran or currently serving military member is entitled to the housing payment in such a way that it is specifically tied to the physical address of the school, the amount of classroom hours signed up for (full or part-time) and also the actual amount of days spent in the classroom during the semester or term.
Unfortunately the GI Bill housing stipend is not a form of income the FHA lender can use as part of the borrower’s debt-to-income ratio for one important reason; the GI Bill benefits will be used up at some point and do not continue indefinitely.
The fact that these benefits will be used up makes them unsuitable as an income source.
That does NOT mean that a borrower can’t use the housing stipend to make mortgage payments as long as that money is coming in, but it DOES mean that the borrower won’t be able to have it counted for debt ratio purposes.
Lender standards, state law, and other factors may also apply above and beyond FHA loan rules in this area. Borrowers who aren’t sure how FHA regulations for verifiable income affect their transaction should have a conversation with their loan officer to get answers to these important questions.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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