You have heard the stories stating that you need to be gainfully employed for at least 2 years before a mortgage lender will look at your application, but what happens if you receive disability income? Are you automatically denied? The good news is that disability income is able to be used for almost any type of loan available today, including FHA and VA loans. The bad news is that you will have some legwork ahead of you to prove your ability to afford the mortgage with your income. If you need your spouse’s disability income to qualify for a loan, you should be ready to be able to prove the income and your eligibility.
Proof is Required
The underwriter of your mortgage will need concrete proof of your disability income. This means more than showing receipt of the income. When an underwriter is looking at the big picture, he needs to know that your loan is affordable not only now but well into the future. Just as he would look for 2 years of consistent income if you were employed, he will need proof that your disability income is set to continue for a decent amount of time in the future. This can be proven with the eligibility letter received when benefits began, the benefits statement and your bank statements.
Consistency is Key
Your disability income will need to continue for another 3 years in order to be used to qualify you for a loan. If it is long-term disability and there is no expiration date on your eligibility letter, most lenders will assume its continuance. If there is an expiration date of your benefits or you will be transferred from short-term disability to long-term disability benefits, the lower amount of the long-term disability will be used for qualification purposes. If you are unable to prove that you will be receiving the payments indefinitely, the income may not be able to be used, which is typically the case with borrowers that receive short-term or temporary disability.
Showing Receipt of the Income
Lenders also need to see receipt of your income. Simply showing that you are entitled to the money is not enough proof for a lender to provide you with a loan. They need concrete evidence of the payments being deposited into your account. Typically lenders will require 12 months of bank statements showing the deposit of the money from your disability income. If you have the money directly deposited into your account it is easy for the lender to verify the income. If it is deposited by you, there may be a few extra steps necessary to prove the income depending on the specific lender’s requirements.
Lenders cannot disqualify you from a loan strictly because you are on disability income – which is good news. The bad news is that you are going to have to jump through quite a few hurdles to get your income used in order to obtain a mortgage. Just claiming that you receive disability income is not going to be enough. Your lender will need to verify this income several ways before using it for qualifying purposes. If you need this income to qualify for your mortgage, make sure to have as much evidence of your eligibility, the receipt of the income and the continuance of the benefits for at least 3 years before applying for the loan. The more evidence you have prepared for the lender, the easier it will be to get through the loan process. If you are unsure if your disability benefits need to be used, talk to your loan officer about your specific debt-to-income ratio to determine what you need to do to make the loan process as easy as possible.Click to See the Latest Mortgage Rates»