Social Security Income For Mortgage Lending Guidelines
This Article Is About Social Security Income For Mortgage Lending Guidelines
Homebuyers can qualify for FHA Loans with social security income for a mortgage.
- Under FHA Guidelines On Social Security Income For Mortgage, retired home buyers on fixed income can qualify for FHA Loans
- This holds true as long as they have social security income and/or pension income
- Many retired people on social security income believe they do not qualify for an FHA mortgage
- This is because they do not have full-time employment
- They only have a small social security income and/or pension income
- Non-Taxable social security income can be gross up by 15% under FHA Guidelines On Social Security Income For Mortgage
Qualifying For FHA Loans On Social Security Income For Mortgage
The subprime and real estate meltdown of 2008 has affected many Americans, especially retired folks, where many filed for bankruptcy or lost their homes.
- Many homeowners who counted on the equity they built up on their homes saw their equity vanish
- Many held mortgage balances that were higher than the value of their homes
- Retired homeowners who had subprime mortgages with teaser mortgage rates could no longer afford their home loans
- This is because when the teaser rate adjustment period expired and their loan began amortizing, new mortgage payments can go up substantially
- They had no choice but to do a deed in lieu of foreclosure, foreclosure or short sale
- Many folks who retired were forced back to the workforce to make ends meet
Recovery Of Housing Market
The good news is that the economy has recovered from the Great Recession of 2008. Many seniors and folks who retired can now qualify for FHA Loans On Social Security Income for mortgage. HUD, the parent of FHA, has loosened the HUD Guidelines to make homeownership affordable again, especially for home buyers on social security and/or retirement income.
- For those Americans who are retired and on a fixed income, they can use that income to qualify for a mortgage loan
- The great part of using social security income that is not taxable, borrowers can gross up their social security income for mortgage by 15%
For example, here is a case scenario:
- if the potential buyer of a home wants to qualify for Home Loan with social security income for mortgage
- And their only income source is social security
- And the monthly social security check is $1,000
- Lenders allow for the income of $1,000 to be grossed up by 15% or $1,150
Borrowers can use this income as the qualifying income.
Grossing Up Social Security Income For Mortgage
Let us take a case scenario.
Let’s say that Jim Jones has social security income of $1,000:
- Jim Jones has no other debt
- Has 3.5% down payment to put down towards the purchase of a new home
- Wants to see what mortgage loan amount he qualifies for
- Jim also makes $1,000 per month on a part-time job he has held for the past 2 years
- The maximum front end debt to income ratio allowed is 46.9%
- And back end debt to income ratio allowed is 56.9% to get an approve/eligible per Automated Underwriting System approval as long as the borrower has a 620 FICO credit score
The first thing we do is to gross his income up to $1,150:
- Add the additional part-time monthly income of $1,000 plus the social security income of $1,150
- So the total monthly gross income is $2,150
- We then take $2,150
- Then multiply it by 46.9%
- We get the maximum monthly mortgage payment that can be allocated
- This needs to include principal, interest, property taxes, and homeowners insurance
- That amount is $1,008.35 per month (allowed for front end debt to income ratio) that is allocated towards his housing ratio
- The maximum back end debt to income ratio allowed would be $2,150 multiplied by 56.9% or $1,223.50
- Again, the housing expenses includes principal, interest, taxes, and insurance
- Part of the housing front end debt to income ratios included the FHA annual mortgage insurance premium which is 0.85% of the FHA Loan Balance divided by 12
That yields the monthly FHA mortgage insurance premium
The back end debt to income ratio is the housing expenses plus all other minimum monthly debts that report on the borrower’s credit report.
How Mortgage Underwriters Calculate Income
For math purposes, let’s say his insurance is $600 per year and taxes are $1,200 per year.
- So his combined taxes and insurance monthly payment is $150 per month
- Monthly principal and interest payments on a $100,000 FHA Loan at 4% amortized over 30 years is $477.42
- FHA annual mortgage insurance premium of 0.85% of the FHA Loan balance needs to be factored in
- For math purposes, let’s just figure Jim is getting a $100,000 FHA Loan
- So his annual FHA MIP will be 0.85% of the $100,000 Loan balance or $850 per year
- Divide the $850 by 12 and his monthly FHA Loan MIP will cost him $70.83 per month
- Jim total monthly housing payment of $477.42 plus FHA monthly MIP of $70.83 plus his taxes and insurance of $150 will total $698.25
This borrower will definitely qualify for this $100,000 FHA home purchase loan with social security income for mortgage plus the additional income from his part-time job.
About The Author
Tammy Trainor is the Chief Operating Officer at Capital Lending Network, Inc. Tammy is also an associate contributing editor for Gustan Cho Associates. Tammy Trainor is also the branch manager of the Tammy Trainor Team at Capital Lending Network, Inc. in Redding, California. Tammy Trainor brings over a decade of mortgage experience and has a national reputation of getting loans done where others cannot due to lender overlays. Tammy has stellar five-star reviews on Yelp and Zillow and is a national featured writer on many mortgages and real estate websites. Tammy Trainor can be contacted at [email protected]allendingnetwork.com.