If you are on disability, you likely assume that the income you make will be used for qualification purposes when you apply for an FHA loan. The answer is not as straightforward as you might think, though. Not all disability income is able to be used on loan applications. The circumstances surrounding the income greatly matter when it comes to qualifying for any type of loan, including FHA loans.
Duration of Disability Payments
The one thing that the FHA and your lender is most concerned with is how long you will receive the income. This is different than verifying your income from an employer; lenders want to see a past history of typically 2 years in order to use your salary for qualifying purposes just for consistency and stability. Disability income is different – they need to know how long you are going to have the income as some disability income is temporary while other disability income is long-term. So what does the FHA need? Basically, they want to see your income continue for 3 years after the date of the loan in order to use it for qualifying purposes. You can prove the continuance of your benefits with an award letter that states the specific time period you are going to receive the money. If you do not have an award letter, a letter on the letterhead of the entity providing the income will typically suffice.
Is your Disability Income Consistent?
If you have disability income that comes and goes for any reason, it will not be able to be used on your loan application for an FHA loan. Lenders want to see consistency, which means they want to see regular deposits of the income in your bank account. You have to prove receipt of the income; you cannot just provide an award letter and state that you receive the money. The lender and the FHA need proof that you actually receive it. If you do not have the proof or it is not consistent for one reason or another, it cannot be used for qualifying purposes.
Your Condition does not Matter
One thing is for certain, no matter what lender you go through to get your FHA loan, no one can ask you why you receive disability nor can they use your disability to discriminate against you in the home loan process. The lender does not need to know how you got hurt, where, or why. They just need proof of the income and that it will continue. As long as you can provide those documents, the lender or the FHA cannot ask for anything further from you. Their needs are strictly income based. This means they cannot ask you to get a letter from a doctor stating that you will be disabled for the next three years or anything similar to that – they have to rely on the award letters provided by the entity paying you the money, which is typically the Social Security Administration.
Disability income can typically be used on an FHA loan for qualification purposes as long as you follow the rules. If you do not know what you need to provide, talk to your lender about the documents they require. Each lender will have their own rules regarding this type of income since it is such a volatile income, especially if you were due to come off of it in the next six to twelve months. The lender needs to protect himself knowing that you can afford the mortgage for the foreseeable future – if your disability income will not continue, that does not help the lender know that you will be able to afford the loan. Having other income or compensating factors backing you up can help you make your situation look better for various lenders as you shop around.