How is an installment sale of a home counted as income?

I don't have an answer to your question as posed, but one consideration I would suggest is that if the house is sold on installment, I believe that she would still retain title until the final installment. So she'd still be responsible for property taxes.

And there's always the possibility that the borrower will default and stop making payments.

I think purchasing a less expensive house would be a good consideration, if a smaller house actually suits your needs.

But with Aid & Attendance, a house sale may required some special consideration. I'd consult with the VA before making any decisions.

Contact your primary at the VA and ask to speak with a social worker, and ask her if there is anyone who can give you advice on this situation.

The monthly income from a "sold by owner" home does not count as income month over month for VA eligibility purposes.

Tossit926, I can only recommend your mother not sell her home in this manner. As mentioned by GardenArtist, borrower could default. My elderly parents tried to sell their home in this way...and the borrower stopped making payments, only doing so at the very end of the legal time frame they had, making sure my parents could not evict them. By the time they paid lawyer fees and I got involved to help to hire a different lawyer, parents paid a lot of money to lawyers. Not to paint everyone with a broad brush stroke, but my opinion is that anyone who cannot get a loan through a bank is always a bad bet...and it’s worse with elderly sellers who get taken advantage of.

https://www.irs.gov/publications/p537 I hope this helps.

So your widowed elderly mom would be essentially doing a FSBO and underwriting the lending of the sale by accepting installments. That’s it, right?

To me it’s a bad, HUGE bad idea as too too much risk for mom.
Please PLEASE reread GardenArtists & MLx4 posts.

Those buyers need to shop around to find a lender who will do a standard 20 / 30 yr mortgage on mom’s house at appraised or FMV. Lenders exist. Mom gets the $ from the sale and uses it to buy an age in place friendly condo or small garden home assuming it makes sense for her to continue to live on her own.

Now if the buyers are totally credit unworthy that’s a different issue and if so no way mom should be selling to them. If the buyers are family and moms doing this to help out her favorite nephew situation, pause to realize that if say in 2022 mom needs a NH and applies to Medicaid as she doesn’t have the 7k-15k a mo that a NH costs and VA $ through Aide&Attendance isn’t high enough to cover NH costs.... that installment “sale” will pose Medicaid  income and asset transfer issues for her. 
Who will pay for mom’s NH stay if she’s ineligible for Medicaid in the future?

Thanks everyone for responding. My mother would sell to a family member in the installment option. Not sure how that would look if we ended up applying for Medicaid eventually. The idea of a smaller house is the most appealing to me. I have a disabled brother who lived with mom until she recently moved to assisted livg. Now he is living alone in a 5 bedroom house. We need to get him into an apartment or a smaller house, but we also need money for mom to pay for assisted living after her savings runs out. I have an appointment with a VA rep tomorrow. Hoping for some good advice. Thanks all.