Disability Income and Your First FHA Home Loan
March 18, 2019
Some borrowers don’t realize that the home loan application process requires the lender to verify employment and review income to make sure it meets lending standards.
First-time home buyers may be confused by this requirement to verify income, but the bottom line is that to get your FHA home loan approve, your income must be stable and likely to continue.
Borrowers who receive disability payments may naturally want to have those payments considered for real estate loan approval, but what is the FHA standard in this area? It’s simpler than you think and if your disability income has no expiration date you may be in a good position to have that income considered for your mortgage.
What FHA Home Loan Rules Say About Disability Income
The basic rule for the lender’s approval of disability income is that there must be documentation, it must either have no expiration date, or the expiration date must not be within three years of the home loan application date.
HUD 4000.1, the FHA loan rulebook, says specifically:
“The Mortgagee must 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.”
And as mentioned above, “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.”
But there are certain circumstances that the lender must be mindful of; HUD 4000.1 instructs the loan officer, “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.”
That is a very important consideration for borrowers to keep in mind. It is best to move forward with submitting disability income when the final documentation is ready since the FHA loan rules won’t allow the lender to move forward with disability income that is under review or pending.
You should also remember a very important privacy-related rule for FHA home loans-the lender must never, under any circumstances ask the borrower about the nature of the disability associated with the disability payments. This is not permitted for the purposes of reviewing the income for home loan approval.
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First-time home buyers may be confused by this requirement to verify income, but the bottom line is that to get your FHA home loan approve, your income must be stable and likely to continue.
Borrowers who receive disability payments may naturally want to have those payments considered for real estate loan approval, but what is the FHA standard in this area? It’s simpler than you think and if your disability income has no expiration date you may be in a good position to have that income considered for your mortgage.
What FHA Home Loan Rules Say About Disability Income
The basic rule for the lender’s approval of disability income is that there must be documentation, it must either have no expiration date, or the expiration date must not be within three years of the home loan application date.
HUD 4000.1, the FHA loan rulebook, says specifically:
“The Mortgagee must 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.”
And as mentioned above, “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.”
But there are certain circumstances that the lender must be mindful of; HUD 4000.1 instructs the loan officer, “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.”
That is a very important consideration for borrowers to keep in mind. It is best to move forward with submitting disability income when the final documentation is ready since the FHA loan rules won’t allow the lender to move forward with disability income that is under review or pending.
You should also remember a very important privacy-related rule for FHA home loans-the lender must never, under any circumstances ask the borrower about the nature of the disability associated with the disability payments. This is not permitted for the purposes of reviewing the income for home loan approval.
------------------------------
RELATED VIDEOS:
Know What's On Your Credit Report
FHA Loans Have Credit Requirements
Help Is Available With Down Payment Grants
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