Other Income Sources: Rental, SSI, Disability

In addition to traditional employment income, there are several other income sources that borrowers may have, such as rental income, Social Security Income (SSI), and disability benefits. These alternative income sources can be considered by lenders when evaluating a borrower's ability to repay a mortgage loan. Here's an overview of these income sources:

Rental Income:

If a borrower owns rental property, the rental income generated can be included as part of their overall income calculation. Lenders typically require documentation to verify rental income, which may include:

• Lease Agreements: Providing copies of lease agreements helps establish the rental terms, duration, and rental income amount.

• Rental Payment History: Lenders may request bank statements or canceled rent checks to verify a consistent history of rental income deposits.

• Schedule E (IRS Form 1040): Borrowers who report rental income on their tax returns can provide a Schedule E, which details the income and expenses associated with the rental property.

Lenders may have specific guidelines on the treatment of rental income, including requirements for rental history duration and income stability. Deductions for property expenses, vacancy rates, and potential rental income losses may also be considered.

The vacancy rate or vacancy factor refers to the percentage of time that a rental property is expected to be unoccupied or vacant. Lenders consider this factor when assessing the income potential and risk associated with an investment property, particularly when determining the maximum loan amount for a borrower. Lenders incorporate the vacancy rate into their calculations to ensure that borrowers can still meet their mortgage obligations even during periods when the property may not be generating rental income.

For example, if a lender determines that a property's vacancy rate is 10%, it means that they expect the property to be vacant or unoccupied for approximately 10% of the time. This factor is then taken into account when assessing the property's rental income and determining the borrower's eligibility for a mortgage.

Social Security Income (SSI):

Social Security Income is a federal assistance program providing financial support to individuals who are disabled, blind, or elderly and have limited income and resources. When evaluating SSI as a source of income, lenders typically require documentation, such as:

• Benefit Verification Letter: Borrowers can obtain a benefit verification letter from the Social Security Administration (SSA) that confirms the amount of SSI received.

• Bank Statements: Providing bank statements that show the regular deposit of SSI funds can help verify the income.

Lenders will consider the stability and duration of the SSI income to assess its suitability for mortgage qualification. It's important to note that not all lenders accept SSI as a qualifying income source, so borrowers should discuss their specific situation with their lender or mortgage professional.

Disability Benefits:

Disability benefits may be provided by private insurance policies or government programs, such as Social Security Disability Insurance (SSDI). The documentation required for verifying disability benefits as income can include:

• Benefit Award Letter: Borrowers can provide an official benefit award letter from the disability benefits provider, detailing the amount and duration of the disability benefits.

• Bank Statements: Lenders may request bank statements that show regular deposits of disability benefit payments.

Similar to SSI, lenders will consider the stability and duration of disability benefits as part of the borrower's overall income assessment.