Home loan approval depends on a variety of factors–your credit score, history of on-time payments on your financial obligations, and your income. Where your paycheck is concerned, FHA loan rules say the income must be verifiable and likely to continue in order to be counted for purposes of approving your FHA mortgage.
FHA home loan rules in HUD 4000.1 say that certain benefits may be counted as verifiable income–the rules allow the use of disability benefits to financially qualify for the loan.
But there are borrowers who worry their disability income won’t be counted for the purposes of the loan. In cases where such income meets FHA standards, the borrower likely has nothing to worry about. Those standards are found in HUD 4000.1 and start with a basic definition of what are considered “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 benefits must continue for at least three years into the mortgage to be counted as verifiable income.
The lender is required to verify the benefits–you will need to provide your loan officer with official documentation, bank statements, or other evidence.
One issue some borrowers worry about in this area is the question, “What if the documentation from the issuing agency does not include an expiration date of any kind?” Fortunately FHA loan rules anticipate this.
HUD 4000.1 provides the answer.
“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 borrower, “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.”
In some cases a home loan applicant may be waiting for a review process to finish–this is specifically about cases where it is unclear if the benefits will be approved to continue.
Borrowers who need that income to continue in order to afford the loan should consider waiting until after the benefits review process is complete to fill out paperwork for the FHA mortgage loan; this ensures that the borrower knows for sure the benefits will continue.
Some borrowers may be receiving disability benefits from a private agency rather than state or federal benefits. HUD 4000.1 addresses this situation, too.
“For private disability benefits, the Mortgagee must obtain documentation from the private disability insurance provider showing the amount of the assistance and the expiration date of the benefits, if any, and one of the following documents:
- federal tax returns;
or themost recent bank statement evidencing receipt of income from the insurance provider.”
That verification process will determine whether the private benefits are able to be counted as verifiable income. Talk to your loan officer if you are not sure how these FHA loan rules apply to your transaction.
One thing that is important to point out? FHA home loans cannot be approved using VA GI Bill housing allowances as a source of income. GI Bill funds have a specific expiration and are not “likely to continue” in the same way that disability benefits are. GI Bill housing funds are temporary in nature and can’t be used to qualify for a mortgage.