The Home Buyer's Korner

Information presented should be used for educational purposes only.

January 22nd, 2016

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NASHVILLE, TENNESSEE

Home Buyer’s Korner

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 FHA & Other Income Considerations

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If you are receiving government issued or assisted income such as:

  1. Military income,
  2. VA benefits,
  3. Government assistance programs,
  4. Mortgage credit certificates, or
  5. Section 8 home ownership vouchers.

FHA allows it to be used to qualify for a home loan. Not all these types of payments are viewed the same however. For example, when it comes to military allowances over base pay such as:

  1. Variable housing allowances,
  2. Clothing allowances,
  3. Flight or hazard pay,
  4. Rations, and
  5. Proficiency pay.

This income is acceptable, as long as the probability of continuation is verified in writing. Many lenders may use 125% of the documented income as the qualifying income for a mortgage application, if it’s determined that it’s non-taxable income.

VA benefits have their own special rules.

Direct compensation for service-related disabilities from the Department of Veterans Affairs (VA) is acceptable income for qualifying, provided the lender receives documentation from the VA. While, education benefits used to offset educational expenses are not acceptable.

Home buyers receiving government assistance also have a special set of guidelines which cover this type of income:

Income received from government assistance programs is acceptable for qualifying purposes, as long as the paying agency provides documentation indicating that the income is expected to continue for at least three years.

When receiving Section 8 income, it may be treated as income if a home buyer is receiving subsidies under the housing choice voucher home ownership option from a Public Housing Agency.

Continuation of the home ownership voucher subsidy beyond the first year is always subject to Congressional appropriation and FHA general wants to insure that any qualifying income is expected to continue for at least three years.

Due to the nature of this income and its governing authority FHA has agreed that it will assume for the purposes of qualifying for an FHA mortgage the subsidy can be assumed to continue for timeline needed for income qualifications.

FHA also requires your lender takes into consideration for how the subsidy is paid out. If a home buyer is receiving the subsidy directly, the amount received is treated as income. The amount received may also be treated as non-taxable income and ‘grossed up’ by 25%, which means that the amount of the subsidy, plus 25% of that subsidy may be added to the borrower’s income from employment and/or other sources.

FHA also addresses the procedure for payment of the subsidy. “As the subsidy payment must not pass through the borrower’s hands, the assistance payment must be

  1. Paid directly to the servicing lender, or
  2. Placed in an account that only the servicing lender may access.

Many potential home buyers are seasonal workers; experience times of unemployment and unemployment benefits can also be considered for qualifying purposes. Unemployment income must be documented for two years, which is usually verified with your federal tax returns and there must be reasonable assurance that this income will continue.

If you receive alimony, child support, or maintenance income and want to buy a home, there’s a lot of advantages when using FHA as your financing tool.

FHA generally requires evidence of the past 12 months’ receipts of on-time payments for child support or alimony and certain circumstances, you might only show as little as 3 months receipts of on-time payments. According to FHA, alimony, child support, or maintenance income may be considered effective if:

  1. Payments are likely to continue for at least from the day you close on your home.
  2. Home buyers will need to provide legal documentation of their agreement: divorce decree, separation agreement, court order, or voluntary payment agreement.
  3. Be prepared to provide documentation that the income has been received on time for the past 12 months: cancelled checks, deposit slips, tax returns, or court documentation.

Alimony, child support, or maintenance income may be accepted if received for less than the past 12 months, if the lender can adequately document the payer’s ability and willingness to make timely payments. In addition, child support may be used as non-taxable income. Many lenders often use 125% of the documented child support income as the qualifying income for a mortgage application, since it’s not taxable income to you the home buyer.

When it comes to retirement pay, the lender is required to document the income and its source. There’s also a consideration as to how long that pay might continue.

Retirement income must be verified by the former employer or your Federal tax returns. If any retirement income, such as employer pensions or 401(k) distributions, will cease within the first full three years from the date of closing the income may only be considered as a compensating factor.

Social Security retirement income must be verified by the Social Security Administration (SSA) or from Federal tax returns.

The same rules apply for SSI as for retirement income–if the money is due to stop coming in within the first 36 months of the loan, that income is only to be counted as a compensating factor. The lender must obtain a complete copy of the current award letter. Not all Social Security income is for retirement-aged recipients; therefore, documented continuation is necessary and some portion of Social Security income may be “grossed-up” if deemed nontaxable by the IRS.

As you can see, different situations have different rules and require a specific way to address them. If your income falls within these areas, be sure to discuss them with your mortgage lender, you might be surprised by their answer.

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TENNESSEE HOME OWNERSHIP TOOLS

Your Home Purchasing or Refinancing & Renovation Tools,

Home Improvements, Home Renovations,

Mortgage Loan Officers, Real Estate Agents & General Contractors

are ready to assist you with your home purchase.

Here are just a few of the home improvements

you might consider with any Home Renovation loan

Repair or replace a roof

Install, replace or repair gutters and downspouts

Replace, repair or upgrade your HVAC system

Repair or replace plumbing

Install, repair or replace electrical systems

Kitchen remodeling (including the purchase and installation of appliances)

Bathroom remodeling, Full interior painting, Total exterior painting

Repair or replace a septic system and/or well

Disability access (wheelchair ramp, elevator, widen doorways)

Build, repair or replace a deck, patio or porch

Basement waterproofing and finishing

Abatement/Stabilization of lead-based paint hazards

Replace old windows, Room additions, Finish an attic

Add a second story to your home

Replace a termite damaged sill plate (a water-damaged sill plate also)

Possible landscaping items such as correction of grading & drainage problems,

tree removal, repair a driveway and sidewalks

FHA 203K

Your Home Purchasing or Refinancing & Renovation Tool

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FANNIE MAE HOMESTYLE

The Conventional Alternative to FHA 203K

Great for Real Estate Investors and Second Home Renovations

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USDA RURAL DEVELOPMENT

Up to $10K for Home Improvements, Renovations or a Simple Remodel

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