Social Security Not A Detriment To Getting A Mortgage


Millions of Americans derive income from Social Security. But the way in which lenders view that money can determine whether or not you get mortgage approval. That’s why documentation of Social Security income is important if you’re applying for a loan.

Using Social Security Income On Mortgage Applications

Lenders view Social Security income as solid and dependable. As soon as you begin receiving your government checks, that money can be counted toward your mortgage application income. Often, Social Security isn’t subject to federal income taxes, either, which makes it more valuable in terms of net income. For that reason, some lenders calculate Social Security more generously than they do ordinary income. A mortgage lender may give you credit for up to 125 percent of your Social Security funds, if they are not subject to taxes. If you get a Social Security check for $1,000, for instance, they may be willing to calculate it as $1,250 worth of income.

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New Guidelines

The¬†length of time that you¬íre eligible¬†to receive Social Security matters a great deal. Some recipients only qualify to get those checks for a limited period of time. In August of 2012, the Federal Housing Administration revised its guidance regarding verification of Social Security Income for borrowers of FHA mortgages. In the new rules, it¬ís stated that all forms of Social Security¬†can be used to qualify¬†a borrower. But the income must be verified, and be¬†likely to continue for at least three years. If your Social Security is not expected to last more than three years, it can only be considered as a so-called ¬ďcompensating factor.¬Ē Other examples of¬†compensating factors¬†include such things as healthy amounts of savings, or a hefty down payment. While such positive factors can help you qualify for a loan, they don¬ít boost your application approval as powerfully as regular, steady income does.

Proof And Verification

The lender will require documentation verifying that you are receiving your Social Security, and explaining how long it is expected to continue. One of the best ways to prove your eligibility and the length of your benefits is to provide the lender with a copy of your Social Security Benefit Statement, or Proof of Income letter. You can also give them copies of your federal tax returns, and recent bank statements that show that you’re depositing the Social Security income. In addition, lenders are required to obtain either a copy of the latest Notice of Award letter spelling out your eligibility, or a similar document that verifies the awarding of Social Security benefits. These new HUD guidelines apply only to FHA loans. But experts believe that lenders will likely start applying them in a general way, incorporating them into their standard underwriting practices and procedures pertaining to all Social Security income.

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Date of original publication:
Updated on: November 10, 2015

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