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August 23rd, 2012 (Modified on August 27th, 2012)

New mortgage rules for Social Security recipients

by Peter Miller


Buying justice macroWith all the debate in the current presidential election concerning Social Security, it’s sometimes forgotten that Social Security is actually a form of income, income which can be used to justify a mortgage. Now–with great timing–HUD has come out with new rules showing how FHA mortgage lenders must document Social Security income.

To get the best mortgage rates, borrowers need to present the most complete financial information possible. For those who are receiving Social Security, the new standards require lenders to document all income received under the program in one of several ways:

  1. Viewing tax returns
  2. Checking bank statements to see that Social Security payments are being deposited on a regular basis
  3. Documentation from the Social Security Administration such as what’s called a “budget letter” or a “benefits letter” that shows the individual is receiving Social Security benefits
  4. The lender can obtain a copy of the borrowers Social Security Benefit Statement, what is known in government jargon as form 1099/1042S

HUD is also asking lenders to verify that the borrower’s Social Security income will continue.

“If any income from the SSA is due to expire within three years from the date of mortgage application, that income may only be considered as a compensating factor,” said HUD.

A “compensating factor” is something that boosts a borrower’s application, such as a large down payment or a big savings account. In the case of a Social Security benefit which is scheduled to expire in three years or less, there is a benefit to the borrower but it is different than the steady income from an ongoing and permanent Social Security check.

Social Security for Disability

Some Social Security payments are not for retirement but are instead to help with a disability. In this case, HUD makes it clear that the reason for the payment is none of the lender’s business.

“If the Notice of Award or equivalent document does not have a defined expiration date, the lender shall consider the income effective and likely to continue. The lender should not request additional documentation from the borrower to demonstrate continuance of Social Security Administration income. Under no circumstance may lenders inquire into or request documentation concerning the nature of the disability or the medical condition of the borrower.”

For more information…

If you now receive Social Security payments or expect such payments in the near future, be sure to save all official documents and letters.  Although the new HUD rules only apply only to FHA loans, such guidelines will generally be adopted by all lenders as part of their general underwriting standards.

For more information go to: http://www.socialsecurity.gov/ and review application requirements with your loan officer.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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