Documentation requirements have been released for Social Security income used to qualify borrowers for loans insured by the Federal Housing Administration. In addition, the minimum term that the income must continue has been addressed.
Questions from lenders about using Social Security income to qualify borrowers for FHA mortgages prompted the Department of Housing and Urban Devlopment to issue clarification about the requirements in such situations.
Mortgagees can consider all types of earnings from the Social Security Administration when qualifying a borrower for an FHA loan as long as the income has been verified and is likely to continue for at least three years from the date of the mortgage application.
According to Mortgagee Letter 12-15, eligible Social Security earnings includes supplemental security income, Social Security disability insurance and Social Security income.
Income must be verified from either a federal tax return, the most recent bank statement or a proof of income letter. In addition, the applicant’s Social Security Benefit Statement SSA-1099/1042S is acceptable.
The term of the income needs to be documented through the last notice of award letter or an equivalent document that establishes award benefits to the borrower. If the start date is in the future, then the borrower needs to have other income until the start date such as worker’s compensation or private insurance to qualify for the loan.
When no expiration date is indicated, then the lender can use the Social Security income in the loan qualification without limitation.
Social Security income that won’t continue for three years can only be considered as s compensating factor.
If re-evaluation is pending of medical eligibility, the mortgagee should not take that as an indication that benefit payments will stop.
“The lender should not request additional documentation from the borrower to demonstrate continuance of Social Security Administration income,” HUD stated. “Under no circumstance may lenders inquire into or request documentation concerning the nature of the disability or the medical condition of the borrower.”
The requirements are immediately effective.
