When you apply for an FHA home loan to buy real estate, your lender will need to verify your income and employment. Some borrowers may wish to submit disability income for consideration but aren’t sure if that income will qualify.
FHA loan rules address these concerns; HUD 4000.1 instructs the lender how to verify disability income, and defines how disability income may qualify.
According to HUD 4000.1, the lender is required to “verify and document the Borrower’s receipt of benefits from the SSA, VA, or private disability insurance provider. The Mortgagee must obtain documentation that establishes award benefits to the Borrower. “
What Disqualifies Disability Income From Consideration For An FHA Home Loan
If the borrower’s disability income has an expiration date within three years from the date of the mortgage loan application application, “that income cannot be used as Effective Income” according to the FHA loan rulebook.
What If The Disability Income Has No Defined Expiration Date?
The lender will need to review what HUD 4000.1 describes as a “Notice of Award” or an equivalent document. If that document does not list an expiration date for the payments, HUD 4000.1 says, the lender “may consider the income effective and reasonably likely to continue” which is the criteria for approved income sources for loan purposes.
However, there is a caveat: the lender is not permitted to “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”.
When submitting disability payments for consideration as effective income for your home loan, the FHA loan rulebook anticipates privacy concerns related to such payments. The lender is expressly forbidden by FHA home loan rules from asking about the nature of the disability.
Specifically, HUD 4000.1 states, “Under no circumstance may the Mortgagee inquire into or request documentation concerning the nature of the disability or the medical condition of the Borrower. “
As mentioned above, the key to having disability payments approved for the purposes of an FHA home loan is that the payments are likely to continue and/or will not expire within three years of the application.
Talk to your loan officer about any additional requirements that may be present due to state law or lender standards as these will also play a part in loan approval.