Buying a Home on Disability: The Bridge Income Guide

The guide in brief

Disability income and a mortgage: the guide in brief

Here is a plain summary of the main points in Buying a Home on Disability: The Bridge Income Guide. The full guide goes further, with the moves to make before you apply and the questions to bring to a lender. It is general information, not medical, tax or legal advice, and each program sets its own rules, so the terms that apply vary by program and by file.

Disability income is income

A common assumption is that a lender will see a disability benefit, notice that it could end, and stop reading. That is not how a well-built file works. A lender looks at a disability benefit the way it looks at any other income: what it pays, how often it is paid, whether it is actually being received, and whether it is likely to continue. The file reads your benefit documents, not your health. We do not ask for medical records or about your condition.

When a short-term benefit becomes long-term

Lenders count income that is stable and likely to continue, so a benefit with an end date close at hand is hard to count on its own. When your policy shows in writing that a short-term benefit converts to a long-term one, the long-term amount may be the one the lender counts, because that is the income expected to carry on. The short-term benefit is the bridge; the long-term benefit is the income behind the loan. Whether this applies depends on the policy’s own terms, including any end or review date it shows, and on the program. It is never automatic.

The papers that let a lender count the benefit

A benefit is counted from paper, not from a phone call. Gather these before you apply, so the file does not stall:

• your policy, award letter or benefits statement showing the benefit you receive;
• the amount, and how often it is paid;
• proof that the payments are actually arriving, such as bank statements, not only a letter saying the benefit was awarded;
• any end date or review date shown on the policy;
• if a short-term benefit converts to long-term, the documents that show the conversion in writing.

If part of the benefit is not taxed, tell your loan officer: income that is legally not taxed can be counted with that in mind. Whether your benefit is taxable is a question for your tax adviser.

If you are heading back to work

The guide is just as plain about the other direction. If your benefit is set to drop because you are returning to work, the file does not pretend the benefit will continue. It is built instead on the pay you are going back to, usually with a signed letter stating your intent to return and confirmation from your employer. The details vary by program. Where the benefit is heading decides which income counts.

When a standard loan is the simpler route

Not every file needs this extra care. When a file fits a standard conventional loan cleanly, that is usually the simpler route, with fewer documents, and a loan officer should say so. The care described here matters most where a temporary benefit could otherwise be misread, and where the long-term benefit, or the pay you are returning to, tells the true story.

Getting the loan, and living with the payment

Getting a loan and being comfortable with the payment are two different questions, and you deserve an answer to both. Before you apply, the guide suggests you confirm in writing what kind of benefit you have; find the amount, how often it is paid and any end or review date; collect recent proof that it is being received; ask your employer about a return-to-work letter if that applies to you; and take any question about taxes, benefit eligibility or legal status to a CPA or attorney before you apply, not after. Questions about the benefit itself go to your policy provider.

To see the full list of income papers, including award letters and proof of receipt, read our mortgage document checklist, or see the home purchase loans page for how a purchase loan works and the programs a licensed loan officer can compare with you.