In this blog, we will discuss and cover social security income for mortgage income guidelines on government and conventional loans. Homebuyers can qualify for FHA, VA, USDA, and conventional loans with social security income for a mortgage. Under general FHA, VA, USDA, and conventional loan Social Security Income For Mortgage retired home buyers on fixed income can qualify for home 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 a home mortgage due to not having enough qualified income.
What Income Can Be Used To Qualify For a Mortgage?
Only qualified income can be used to qualify for a mortgage. Social security income for mortgage lending guidelines on all agency mortgage programs allows social security income can be used as qualified income. If the social security income is paid on a net payment, the income can be grossed up. Other income that can be used are salaried income, hourly wages, commission income, part-time income, overtime wages, bonus income, and restricted stock unit income.
Can You Use Commission, Part-Time, Overtime, and Bonus Income For Mortgage?
However, certain irregular income such as commission, part-time, overtime, and bonus income can only be used if the borrower has a history of receiving such income for the past two years. Lenders will need the most recent paycheck stubs for the past 30 days, W2s, and income tax returns for the previous two years. Furthermore, the likelihood for commission, part-time, overtime, and bonus income to continue needs to be likely to continue for the next three years. With social security income, you can use such income immediately as long you provide the lender with the awards letter from the Social Security Administration.
How Much Can You Gross Up Social Security Income on FHA Loans?
FHA loans are the most popular loan program for seniors on social security. However, you can only gross up 15% on non-taxable income on FHA loans versus 25% on other loan programs. Many borrowers assume they do not qualify for a home mortgage 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 grossed up by 15% to 25% under agency guidelines on social security Pension, retirement and social security income for mortgage lending guidelines can be grossed up by 15% on FHA loans. Social security income for mortgage guidelines on conventional loans can be grossed up to 25%. Social security income for mortgage lending guidelines on VA loans can be grossed up to 25%. The same holds true for USDA loans. Social security income on USDA loans can be grossed-up by up to 25%.
How Much Can You Gross-Up Social Security Income on Conventional Loans?
Borrowers who are on social security and/or have retired can use social security and/or retirement income as qualified income to qualify for conventional loans and can be grossed up. If the income is not taxable and tax-exempt social security and/or retirement income is likely to continue, the income can be grossed up. Fannie Mae and Freddie Mac agency guidelines on Social Security Income For Mortgage Guidelines on Conventional Loans allow social security income on conventional loans can be grossed up by 25%. For example, if the social security recipient gets $1,000 per month for social security income, the qualified income after being adjusted and grossed up by 25% is $1,250 on conventional loans.
Can You Gross-Up Social Security Income on a USDA Loan?
How Do I Gross Up My Social Security Income For a Mortgage?
Can I Qualify For a Mortgage With Only My Social Security Income?
You can qualify for a mortgage by just using your social security income. 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
Mortgage Guidelines For Social Security Income
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 home 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. Those Americans who are retired and on a fixed income can use that income to qualify for a mortgage loan
Calculating Social Security Income For Mortgage
The great part of using social security income that is not taxable, borrowers can gross up their social security income for mortgage by 15% to 25% depending on the loan program. For example, here is a case scenario on grossing up 15% on FHA loans:
- 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.
Mortgages For Seniors on Social Security
Seniors on Social Security income can qualify for mortgages without a traditional full-time job. 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 a 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
Example of How Mortgage Underwriters Gross-Up Social Security Income
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 include 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 Qualified Income For Mortgage
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 are $477.42. FHA’s 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’s 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.
Best Home Loans For Homebuyers on Social Security Income
The best home loans for homebuyers on social security income and/or limited qualified income are FHA loans. FHA loans have the highest debt-to-income ratio cap out of any other loan program with the exception of VA loans. VA loans do not have a maximum debt-to-income ratio cap with strong residual income. However, not every borrower is eligible for VA loans. Conventional loans allow up to 25% of the income to be grossed up versus FHA’s 15%. However, the maximum debt-to-income ratio on conventional loans is 45% to 50% debt-to-income ratio compared to 46.9% front-end and 56.9% back-end debt-to-income ratio on FHA loans. Your loan officer can weigh the pros and cons on which loan program is best for each individual borrower on social security.
June 17, 2022 - 7 min read