If you have an alternative income from a work-related injury or a long-term injury, the devil is in the details when it pertains to how, if or when any of your income you’re collecting could be used to get a mortgage. Things to keep in mind when applying…
What We Mean By Disability Benefits
Disability benefits in the context of getting a mortgage, is an injury incurred that you receive income benefits for either short-term as there is usually a return to work date or long-term benefits i.e. permanently disabled. While every case situation is certainly different, lenders can under certain certain circumstances use the income that you collect as long as long as meets documentable thresholds.
Short-Term Disability
This one is more challenging income benefit to support. Consider the following example -the probability of this income extending into the future is unknown as is the date you plan to go back to work, that is if you’re able to go back to work depending on the extent of your injuries. This is problematic for a bank to approve a mortgage for because of the unknowns.
The question becomes what income should the bank use to approve the mortgage for? The previous income you are earning is no longer in existence and your current income, perhaps it might be smaller than your original income pre-injury, leaves the lender with a hurdling predicament. Well, taking a pragmatic approach, answer may be none because they don’t know what income to use since the future is a mystery.
In this scenario if you need your pre-injury related event income in order to attain loan approval, the lender may be able to use your old salary if they know when you’re going back to work. For example let’s say six months ago you were earning $8,000 per month in income, and for the last six months your income is been cut to $5,000 per month because you fell down a flight of stairs and broke your wrist and you can no longer work with your hands as your occupation requires.
If the lender knows you’re going back to work in the next 30 days for example or even as long as 45 days, there is a strong chance your lender could use your past and future $8,000 per month in income to qualify you for the mortgage loan. This would have to be supported with a letter from the employer stating the anticipated work date you return to your job, doesn’t matter if your previous job is full-time or part-time, this would be a critical piece of information that would greatly assist the lender in overcoming this income dilemma. Additionally, it would also be reasonable to expect a letter from the either insurance company providing the benefits or the physician administering the care. The more documentation that supports anticipated return to work date the better your chances of being able to use your income even without you actually being back to work yet.
If this cannot be supported with any type of documentation, you would be more loan eligible once you are actually back to work supported with a pay stub.
Long-term Disability
In nearly every scenario this income can be used. Consider the following example let’s say a police officer earning $100,000 per year has a lower back injury and is deemed permanently disabled and his income is cut $30,000 per year. There is no return back to work date as the civil service employee is permanently disabled. The $70,000 salary in permanent disability income would be used to qualify so long as there is at least a 36 month continuance into the future. Any history of earning higher income in working years would be omitted for the loan application as both the current and future income is now the permanent disability income.
The Continuance Factor
This it the number one concern lenders are going to have whether they’re a short-term or long-term disability on the mortgage application. In other words, ‘what is the likelihood of this income continuing? If this income dropped what would that do our mortgage applicant’s ability to support the housing payment into the future?’
This is the type of question/reasoning the lender is going to be strongly scrutinizing when identifying disability income on a loan application.
Probability Of Continued Employment
The verification of employment is done by the home loan lender usually three times during the loan process, two times before drawing final loan documents, followed by one time just prior to funding. This is regulatory guidelines lenders must adhere to. The verification of employment becomes a critical piece of information especially with short-term disability as there is a box identified on the verification of employment form as probability of continued employment -employer fills this information for your lender. Probability of continued employment coincides with the 36 month continuance coupled with the documentation needed to support what the future income is going to be so the borrower is not taking on the mortgage payment based on a certain income affordability level followed by a subsequent change with an inability to make the mortgage payment, which is why the stipulations are in place.
Applying For A Mortgage? Tips If Have Or Will Have Disability Income Benefits:
- Get letter from the employer and physician stating approximate return to work date
- Provide lender all details of the short-term disability
- Provide long-term disability awards letter/details from disability benefits provider
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