Mortgage lenders cannot discriminate against a borrower just because she receives Social Security benefits. Mortgage lenders also cannot discriminate against a borrower because of her age or because she receives disability benefits. As long as the person receiving the Social Security income can qualify for the mortgage, the lender must approve that mortgage as they would if anyone else applied for the loan.
Documenting Social Security Income
Lenders allow homeowners with Social Security income to qualify as long as they can document their Social Security income. Each year the Social Security Administration provides an awards letter to each person eligible for Social Security income. This awards letter outlines the amount of Social Security received each month for the following year. Mortgage lenders request a copy of the Social Security awards letter, the copy of the most recent one or two years of tax returns and a bank statement verifying they receive the funds.
Qualifying with Other Retirement Benefits
Many homeowners who receive Social Security income also receive other types of retirement income. Mortgage lenders allow homeowners to qualify with pensions, private retirement benefits, disability, interest and dividends. Borrowers doe not have to choose what type of income to qualify with; they may qualify with their Social Security and any other retirement or other non-employment income they receive.
Just because a homeowner receives income does not mean the mortgage company will approve them for any loan amount they want. The mortgage company reviews the borrower’s income and compares it to the mortgages monthly payment and the combined monthly payments of all the debts, including the new mortgage. They then calculate the debt-to-income ratio for the loan. Fortunately, many of the retirement benefits including Social Security are sometimes not taxable income. If an income is not taxable by the IRS, mortgage companies often increase the amount of income used to qualify by 25 percent. This is so the Social Security income is used to qualify for equal amount of mortgage as other taxable income does.
Homeowners of Social Security age qualify for a loan program that does not require any payments. The Federal Housing Administration (FHA) offers reverse mortgages to homeowners 62 and older. The homeowner does not have to receive Social Security, but must be eligible for Social Security to qualify. Since there are no payments due, the reverse mortgage qualification process does not require the homeowner prove any income. The homeowner keeps the home and may draw an income from the house for life through this loan program.
- FHA-Guidelines: FHA Income Guidelines
- HUD: Frequently Asked Questions About HUD's Reverse Mortgages
- Social Security Administration. "SUMMARY of P.L. 98-21, (H.R. 1900) Social Security Amendments of 1983-Signed on April 20, 1983." Accessed Feb. 27, 2020.
- Social Security Administration. "Benefits Planner | Income Taxes And Your Social Security Benefit." Accessed Feb. 27, 2020.
- Social Security Administration. "Replacement SSA-1099." Accessed Feb. 27, 2020.
- AARP. "Which states tax Social Security benefits?" Accessed Feb. 27, 2020.
- Federation of Tax Administrators. "State Tax Agencies." Accessed Feb. 27, 2020.
- Social Security Administration. "Monthly Statistical Snapshot, January 2020." Accessed Feb. 27, 2020.
- Internal Revenue Service. "Roth Comparison Chart." Accessed Feb. 27, 2020.
- Internal Revenue Service. "Early Retirement Distributions and Your Taxes." Accessed Feb. 27, 2020.
- Internal Revenue Service. "Retirement Plan and IRA Required Minimum Distributions FAQs." Accessed Feb. 27, 2020.
- Internal Revenue Service. "Instructions for Form 1098-Q," Pages 1-2. Accessed Feb. 27, 2020.
- Internal Revenue Service. "Instructions for Form 1098-Q," Page 1. Accessed Feb. 27, 2020.
- Internal Revenue Service. "Internal Revenue Bulletin: 2014-30." Accessed Feb. 27, 2020.
David Rouse, currently residing in Raleigh, N.C., has been writing and teaching home owners about the mortgage industry since 1997. Rouse has written training manuals for mortgage professionals and conducted informational first-time home-buyer seminars, providing make-sense answers for a long and confusing process. He studied at Western Kentucky University.