Pension,Social Security, Foster Care, IHSS Income

Supplemental Security Income (SSI) is verified similarly to other Social Security income but requires specific documentation to ensure validity. The lender must obtain documentation such as federal tax returns, the most recent bank statement evidencing receipt, a Proof of Income letter (Budget or Benefits Letter), or the borrower’s form SSA-1099. In addition to verification of receipt, the lender must document continuance by obtaining a copy of the last Notice of Award letter determining eligibility or equivalent documentation establishing the award benefits. If the Notice of Award does not indicate an expiration date, the income is considered reasonably likely to continue.

Yes, “Expected Income,” which includes retirement or pension income that has not yet begun, may be considered effective income under specific conditions. The lender must verify and document the existence and amount of the expected income in writing. Crucially, the income must be guaranteed to begin within 60 days of the mortgage closing. In these cases, the lender must also verify that the borrower has sufficient current income or cash reserves to support the mortgage payment and any other obligations during the interim period between the mortgage closing and the start of the retirement income receipt.

If any source of income, such as Social Security, disability benefits, or public assistance, has a defined expiration date, the lender must verify how far into the future that date extends. If the income is verified to expire within three years from the date of the case number assignment or mortgage application, that income cannot be used as effective income for qualifying. This rule ensures that the borrower has a stable source of funds to repay the mortgage for the foreseeable future. If valid documentation shows no expiration date, the income is assumed to continue.

Public assistance refers to income received from government assistance programs. To use this as effective income, the lender must verify and document the income received from the government agency. If the documentation provided does not have a defined expiration date, the lender considers the income effective and reasonably likely to continue. However, if the public assistance is due to expire within three years from the date of the mortgage application, it cannot be used. For qualifying purposes, the lender uses the current rate of public assistance received to calculate the borrower’s effective income.

Yes, under certain conditions, lenders may “gross up” nontaxable income to accurately reflect the borrower’s purchasing power compared to taxable income. Nontaxable income includes certain Social Security benefits, public assistance, and other exempt income. The amount of continuing tax savings attributed to this income may be added to the borrower’s gross income. The percentage added cannot exceed the greater of 15 percent or the appropriate tax rate for the income amount, based on the borrower’s tax rate for the previous year. If the borrower was not required to file a tax return, the lender may use a standard 15 percent adjustment.

When calculating effective income from foster care, the lender uses a specific averaging method to ensure stability. The lender must obtain written verification of the payments from the organization providing them. Once verified, the lender calculates the effective income by using the lesser of two figures: the average foster care payment received over the previous two years, or the average foster care payment received over the previous year. This conservative approach helps account for any potential fluctuations in the number of individuals in care or changes in payment rates over the recent history of the borrower.

Foster care payments may be considered acceptable and stable income if specific history requirements are met. The borrower must demonstrate a two-year history of providing foster care services and receiving foster care payments. Additionally, the lender must determine that the foster care payment is reasonably likely to continue for the future. This ensures that the income stream is not temporary and can support the mortgage obligation. If these conditions regarding the stability and duration of the activity are met, the income derived from the state- or county-sponsored organization can be included in the qualifying income calculation.

Yes, pension income received from a former employer can be used as effective income for loan qualification. The lender must verify that the borrower currently receives periodic payments and that these payments are likely to continue for at least the first three years of the mortgage. Verification documents include federal tax returns, the most recent bank statement showing the deposit of the income, or a copy of the pension or retirement letter from the former employer. The lender will use the current amount of pension income received to calculate the borrower’s effective income for the loan application.

Lenders must verify that Social Security income is likely to continue for at least three years from the date of the case number assignment. To do this, they review the Notice of Award or equivalent documentation establishing the benefits. If the award letter does not indicate a defined expiration date, the lender is permitted to consider the income effective and reasonably likely to continue. The lender is strictly prohibited from requesting additional documentation from the borrower concerning the nature of a disability or medical condition to demonstrate the continuance of the income, nor can they rely on pending medical re-evaluations to disqualify the income.

To verify Social Security income, the lender must obtain specific documentation to confirm the borrower’s receipt of the income. Acceptable documents include the borrower’s most recent federal tax returns, the most recent bank statement evidencing the receipt of the income, or a Proof of Income Letter (often called a “Budget Letter” or “Benefits Letter”) from the Social Security Administration. Alternatively, a copy of the borrower’s SSA-1099/1042S form is acceptable. The lender must ensure that the documentation validates the borrower’s eligibility and the amount received. If the Notice of Award does not have an expiration date, the income is generally considered effective and likely to continue.