Yes, you can refinance with disability income. Lenders count Social Security Disability, VA disability, and private long term disability when you can document the award, show the deposits, and the benefit is expected to continue for at least 3 years. Tax free benefits can be grossed up, commonly by 25%, which lowers your debt to income ratio. Here is how each benefit type is treated, what paperwork you need, and a worked example for a homeowner in the Phoenix area.

The three tests lenders apply to disability income

Lenders ask three questions. Is the benefit documented, is it being received now, and will it last? The documentation is usually an award letter from the agency or insurer. Receipt is shown by bank statements with the deposits. Continuance is the hard one, and for most loans the benefit needs to continue for at least 3 years after the date of your new loan. This is the same continuance rule that applies to support income, which we cover in our guide to refinancing with alimony or child support.

If your award letter shows no end date, lenders generally treat the benefit as ongoing. If it shows a scheduled review or a termination date inside 3 years, the lender may exclude the income or ask for more evidence. Federal law protects you here too. A lender cannot treat you worse because you have a disability, and it should not ask about the nature or severity of your condition. The U.S. Department of Housing and Urban Development explains fair housing rights for people with disabilities. A lender may verify the income and its duration. That is all.

Which benefits count and how

Most benefit types count, but each has its own paperwork. Short term disability is the main exception, because it is temporary by design.

The details move by loan program. Conventional, FHA, VA, and USDA each publish their own guidelines, and lenders add overlays on top. That is why the same borrower can get a yes from one lender and a no from another, and why we shop the file instead of sending it to one bank. Our checklist of documents needed to refinance in Arizona shows the rest of the paperwork stack.

How the 25% gross up changes your numbers

Income that is not taxed goes further than income that is. Lenders can add a percentage to tax free income to reflect the tax you do not pay, commonly 25% on conventional loans, so $2,000 a month of tax free VA disability can count as $2,500. VA disability compensation is not taxable, which you can confirm on the VA benefits site. SSDI may be partly taxable depending on your other income, so lenders usually gross up only the portion shown to be tax free. The Internal Revenue Service explains which disability payments are taxable.

Here is a sample Scottsdale homeowner with $4,200 a month in wages and $2,000 a month in VA disability. The new housing payment is $2,300 and other debts are $500. These figures are examples, not a quote.

That 3.4 point drop can move a file from borderline to comfortable. It can also change which loan programs you qualify for and what price you get.

Run your own numbers

Disability combined with wages or other income

You do not have to qualify on disability alone. Many borrowers combine it with wages, a spouse's pay, or retirement income, and the lender adds up what each source supports. If you are over 62 or drawing Social Security retirement, our post on refinancing on Social Security or retirement income covers how fixed income is counted. If the disability income is the only source, the benefit has to carry the entire payment, and equity, credit, and reserves matter more.

Veterans get one extra benefit. Those who receive VA disability compensation are generally exempt from the VA funding fee, which can save thousands on a VA loan. Our guide to the VA funding fee on a refinance shows the numbers. Check your options on our loan programs page and see how our process moves from first call to closing.

What stalls a disability income refinance

The most common problem is an award letter that is out of date. If yours is several years old, request a new one before you apply, because a lender wants proof that the benefit is current. The second is a review date. If a benefit is up for a continuing disability review within 3 years, lenders may exclude it until the review is complete. The third is deposits that do not match the letter. If the bank shows $1,850 a month and the letter says $2,000, expect a question about the difference, which is often a Medicare premium or a garnishment.

Plan ahead on the rate too. Whether a refinance makes sense depends on the rate you hold now, your equity, and your goal, not on the type of income. If you are lowering a rate, run the refinance break-even math first. Use the calculator above to see what a payment looks like at your balance.

If a lender already turned you down, do not assume the benefit was the problem. Denials usually trace to a ratio, a credit issue, or a missing document, and our guide on why refinances get denied and how to fix it walks through the real reasons. A second look from a broker who shops several lenders can change the answer, because one bank may exclude a benefit that another accepts. Gather your award letter, two months of statements, your latest mortgage statement, and your homeowners insurance declaration page before the first call. That single folder saves a week.

Learn more about the Pillar Mortgage Group team, visit pillarmortgagegroup.com, or if you are thinking about moving instead of refinancing, search homes on Arizona Luxury Property Search. We work with homeowners across Scottsdale, Phoenix, Metro Phoenix, and the Valley, and we count your income the way the lender will.

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