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How To Qualify For A Mortgage With Social Security Income

7-Minute Read
Published on February 11, 2021
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You’re ready to buy a home, but you’re retired and rely largely on your monthly Social Security income. Can you still qualify for a mortgage?

Maybe. It all depends on how much income you earn each month. If your Social Security income, plus any other regular income streams, are enough to comfortably cover your estimated monthly mortgage payments and your other regular bills, lenders might be willing to approve you for a mortgage.

Understand, though, that if your credit score is too low or your debts too high, lenders will be less likely to approve your request for a mortgage. And if you’ve targeted a home that will result in a mortgage payment that’s too high for your gross monthly income, lenders won’t approve your request, whether that income comes from legal settlements, a job or your Social Security payments.

How Lenders View Social Security Income

Lenders consider all your income when you apply for a mortgage loan. That includes your Social Security income. You can count any income you receive through this program, including Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI) and traditional Social Security income.

Why does Social Security income matter? It’s because of something called gross income. Your annual gross income is the amount of money you make each year before taxes and other expenses are taken out. That’s different from net income, which is your annual income after taxes are taken out. Your gross income is always higher than your net income.

If you receive monthly Social Security payments, this money is counted as part of your gross income. You just need to send your lender a benefits letter from the Social Security Administration stating how much you receive each month and how long you will receive these payments.

If your Social Security payments are high enough, you might be able to qualify for a mortgage even if this is the only income you get. Lenders aren’t allowed to reject mortgage applications because of the age of borrowers. They can, though, reject your application if your gross monthly income – whether you are relying solely on Social Security or using Social Security payments as part of your monthly income – isn’t high enough to cover your existing debt levels and the addition of your estimated new monthly mortgage payment.

Be careful when applying for a mortgage if Social Security is your only source of income. You don’t want to struggle to pay your mortgage bill each month. That’s called being house poor: You’re spending too much of your income on housing costs. If your income is limited, you might be better off financially renting a lower-cost apartment than you would be buying a home.

Home buyers can use any income from the Social Security Administration when applying for a mortgage. Lenders will treat Social Security payments as part of your gross monthly income, as long as you can provide them with a verified letter from the administration stating that you’re scheduled to receive these payments for at least the next 3 years.

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The Income You Can Use To Land That Mortgage

There are many different income streams that you can use when applying for a mortgage loan. Just be aware: This income must be regular, meaning that you receive it each month. And you must be able to verify it if you want your mortgage lender to consider it when evaluating your loan application.

Social Security Income

If you receive a regular Social Security payment each month, your lender will consider it as part of your monthly income. To prove that you receive payments, and to verify the size of these payments, request a benefits letter from the Social Security Administration. You can order this letter – which states what type of benefits you are receiving and your monthly payment amount – directly from the Social Security Administration’s website.

401(k) Or IRA Retirement Income

If you draw money each month from a 401(k), Roth IRA, traditional IRA or another retirement account, your lender will consider these dollars as part of your income. An IRA withdrawal, then, will boost your qualifying income. Your lender might request that you send in a copy of your most recent retirement account statement so that it can verify how long you’ll receive these monthly withdrawals.

Long-Term Disability Income

Do you receive long-term disability payments from the Social Security Administration? You can use this income to help qualify for a mortgage loan, too. Your lender will probably request a benefits letter from the administration to verify this income. You can get this from the website of the administration.

Investment Income

You can use the dividends and interest payments from your investments as income to qualify for a mortgage. You will have to provide proof to your lender, though, that not only are you receiving these payments but that you have been receiving them for at least 2 years and that these payments will continue for at least 3 more years. To prove this, you'll need to send copies of your investment account statements to your lender. But you'll also have to show copies of your tax returns showing the interest and dividend income that you've received from your investments during the last 2 years.

Annuity Income

You can also use the income from annuities, an investment vehicle that pays out regular monthly payments, when applying for a mortgage. Lenders, though, will want to verify that your annuity payments will continue for at least the next 3 years. Annuities are issued by insurance companies. Request a copy of your annuity statement from the insurance company that issued yours and send it to your lender.

Self-Employment Income

Work for yourself? You'll have to do a bit more digging to prove your self-employment income to lenders. This means providing 2 – 3 years of your tax returns so that lenders can chart how much you've made in self-employment income over time. If your self-employment income is high one year but low the next, lenders might be wary of approving you for a mortgage. You'll also need to send copies of any 1099 forms provided by clients who paid you more than $600 in a year.

Strengthening Your Loan Application

Want to boost your chances of qualifying for a mortgage? The more positives you have on your side, the more likely it is that lenders will approve your application.

Income

Your income is one of the key factors lenders consider when deciding whether to approve your mortgage application. The more money you make each month, the more likely it is that lenders will approve you for a loan. If you earn more, you can qualify for a larger loan that will let you buy a bigger, more expensive home. Your Social Security payments are part of your monthly income. But the more income streams you can bring to your lender, the better your chances of approval.

Debt-To-Income Ratio

Your debt-to-income ratio is another key number when applying for a mortgage. In general, lenders want your total monthly debts, including your estimated new mortgage payment, to be no more than 43% of your gross monthly income. If your only source of monthly income is Social Security payments, your monthly mortgage payment, along with your other debts, can’t be so high that they boost your debt-to-income ratio over that 43% level.

Credit Score

Your three-digit FICO® Score matters, too. If your credit score is low, indicating that you have a history of making late payments or missing payments completely, lenders will be less likely to approve you for a mortgage. If your score is high, your odds of qualifying for a mortgage will rise. Most lenders consider a FICO® Score of 740 or higher to be an excellent one.

Down Payment

Another key factor in your loan application? Your down payment. You can qualify for a conventional mortgage with a down payment as low as 3% of your home’s purchase price. But if you want to boost your odds of qualifying for a mortgage, it’s best to come up with as large a down payment as you can. Lenders like it when borrowers have committed a larger sum of money to their homes even before they start making mortgage payments.

If you need help coming up with down payment money? Investigate the different forms of down payment assistance that might be available to you.

The Bottom Line

Social Security income can be a key factor in applying for a mortgage loan. Remember, though, that lenders want to make sure that you can afford your monthly mortgage payments. Social Security payments might provide the boost to your gross monthly income that you need to qualify for a mortgage.

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