Can you qualify for a mortgage with disability income?

By Michael Jensen, Mortgage and Finance Guru

Edited by Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience

Updated October 20, 2020

If you receive long-term disability income you can use those payments to qualify for a mortgage. As long as you can document your payments -- which we explain in detail below -- disability benefits are an excellent income source when you apply for a mortgage because they are stable and predictable.

There are several points to keep in mind if you want to include disability income in your loan application. First, it is important to highlight that only long-term disability benefits can be used for a mortgage -- short-term disability payments are more challenging to use.

Social Security Disability Income (SSDI) and Supplemental Security Income (SSI) can also be used for a mortgage but the qualification guidelines are slightly different as compared to benefits received from an insurance policy, your company or other non-government source.

To verify your disability income you are required to provide either a copy of your disability insurance policy or an account statement. The lender uses these documents to confirm that you are eligible to receive the benefits, your income and the frequency of payments.

The lender also determines the duration of your payments and if your policy has an end date, which is relatively unusual for long-term disability benefits. The income is required to continue for at least three years to be included when you apply for a mortgage. If your policy has a date when you are re-assessed for your benefits, this is not automatically considered an end date.

If your disability income is expected to remain steady or increase over the next three years according to your policy, then lenders use your current income for your loan application. On the other hand, if your income is scheduled to decrease at any point over the next three years, lenders use the lower income figure.

Your disability income is added to any other income sources such as retirement, investment or pension income to determine the mortgage you can afford. The higher your monthly income, the higher the loan you qualify for.

Use ourMORTGAGE QUALIFICATION CALCULATORto determine the loan you can afford including your disability income

For example, if you receive $2,500 in monthly long-term disability benefits and $1,500 in retirement income, lenders use $4,000 in total monthly gross income to calculate your mortgage amount.

In addition to reviewing your income, you must also meet the lender’s credit score, debt-to-income ratio and financial reserve requirements, if applicable. These qualification guidelines vary based on your specific mortgage program and lender.

To summarize, long-term disability income can help you qualify for a mortgage as long as your benefits are scheduled to last at least three years and you can document your policy. This income is treated the same as other income sources and can increase the loan you can afford.

We recommend that you contact multiple lenders in the table below to confirm their guidelines for using disability income and to compare loan terms. It is important to understand the documents you are required to provide before you submit your application. Plus, shopping lenders is the best way to save money on your mortgage.

Sources

"B3-3.1-09, Other Sources of Income, Disability Income — Long-Term."  Selling Guide: Fannie Mae Single Family.  Fannie Mae, October 2 2019.  Web.