For all hopeful buyers, whether or not they have disabilities, getting a mortgage comes down to a rather simple formula. It’s about how much a loan applicant spends, versus the applicant’s stable income. And yes, stable income includes disability benefits such as Social Security Disability Insurance (SSDI) and Supplemental Security Insurance (SSI).
Disability income might also mean personally purchased or employer-covered insurance. And there can be other sources, like the Department of Veterans Affairs.
Indeed, disability insurance pays many recipients enough to be their whole basis for applying for a mortgage loan.
Getting Oriented
Each lender, and each loan type, has a specific set of approval criteria. The applicant’s credit profile and debt-to-income (DTI) ratio also need to pass muster.
Yet for all hopeful buyers, lenders basically need to know one thing. Will this applicant be fine with the monthly mortgage payment? That is the question — whether funds come from wages, disability, gifts or grants, or a blend of sources. And it’s all about the documents.
If you’re wondering where to start, call the Social Security Administration (SSA) or the Department of Veterans Affairs, and ask for guidance as you gather your documentation. This typically includes the SSA-1099 form or VA disability award letter, your disability insurance coverage, and other evidence of your benefits.
A couple of quick orientation notes are worth pointing out:
- SSDI income alone, for many recipients, can substantiate the ability to repay a mortgage on a modestly priced home. Note that SSDI income is, dollar for dollar, worth more than regular wage income — as the lender understands it’s non-taxable.
- SSI income as the basis of a home purchase is less common. That’s because people who save up for large assets quickly exceed their asset limits to qualify for SSI. The value of your vehicle and the home you live in won’t count against your asset limit, according to the SSA. Still, to keep SSI eligibility, recipients can only hold assets worth $2,000 (make that $3,000 for couples). Closing costs alone run $6,000+ even for a modest home with a no-down-payment mortgage.
So, how do you figure out your personal buying power? Let’s take a look at the key ways.
Seeking Assistance Locally
A good way to learn the ropes quickly? Contact your local branch of the Department of Housing and Urban Development (HUD) for information relevant to where you’re hoping to buy. Be sure to speak with an HUD-approved counselor. Ask how your state helps with down payments through its housing finance agency.
Local non-profits in your area may offer homeowner assistance, too. Some may have grants available and those don’t need to be repaid. Run a quick online search for grants together with homeowners with disabilities and your location.
Another way to start is to call an experienced mortgage consultant in your area. An expert will factor in the funds you’ll need to set aside for monthly bills, repairs and home modifications, and any association fees — plus reserve funds left over for the unexpected.
Checking Out Government-Backed Loans
Now, let’s review the basics of government-sponsored mortgages. Here is the well-known lineup:
- The Federal Housing Administration (FHA) loan is a go-to mortgage for many buyers. If an applicant shows a credit score of 580+, the down payment can be as low as 3.5%. FHA mortgages allow lower credit scores, but for those, the lenders ask for larger down payments. With an FHA mortgage, it’s OK to pay for the down payment and/or closing costs with gifted money.
- Homes in certain rural and suburban areas are eligible for U.S. Department of Agriculture (USDA) loans, which enable buyers to put minimal funds down. USDA borrowers do have to pay private mortgage insurance. Note that USDA loans aren’t just for rural buyers. Eligible areas include many medium-sized and small towns.
- Other buyers qualify for loans backed by the Department of Veterans Affairs (VA). There are home loans for veterans injured in the line of duty. The VA also offers disability housing grants to buy, build, or make accessibility upgrades on a home bought as a primary residence. VA loans allow for no- to low down payments.
Finding Conventional Loans for Modest Incomes
What are the must-see loans for applicants whose disabilities are a financial challenge? Be sure to review these:
- Fannie Mae’s HomeReady mortgage is a solid option. If your income is less than 80% of a location’s median, and your credit score is 620+, you can apply for a mortgage with just 3% down. HomeReady loans allow an applicant to have the help of a co-borrower on the loan who won’t live in the home. Alternatively, have a live-in assistant who pays rent. That rental income may help an applicant buy a better home.
- Freddie Mac’s Home Possible® loan is also designed for applicants with modest incomes. It allows for co-borrowers who won’t live in the home. A helpful co-borrower’s credit profile can boost the primary borrower’s loan eligibility. Freddie Mac allows gifts and other sources for down payments.
With these conventional loan options, you do need to plan to pay private mortgage insurance, a.k.a. PMI. Once you pay off enough of your conventional mortgage to control 20% of your home’s value, you can shake off the PMI. That’s another benefit you get with conventional loans. (With government-backed loans like the FHA’s, you’ll likely need to refinance to get out of the PMI.) Learn about comparing conventional mortgages on Deeds.com.
In Your Corner
An experienced agent can navigate the market, negotiate with sellers, and guide you through closing. Your agent should also be familiar with local down payment assist offerings. A good agent is willing and ready to help you as needed through your journey.
Fair housing laws have your back, too. Lenders can’t create extra hurdles or turn you down on account of your disability. They can’t reject public assistance income. And they can’t ask medical professionals about your situation. If your award letter doesn’t expressly expire at some point within three years, your benefits are simply assumed to be reliable into the future.
But if you believe you’re facing discrimination as a hopeful buyer, you can file an official complaint.
This article is offered as general information and not as legal or financial advice. See your local professional or call your representative at the disability benefits office for case-specific guidance.
U.S. Social Security Administration via SSA.gov: Supplemental Security Income (SSI) in Pennsylvania.
Victoria Araj for Rocket Mortgage, LLC via RocketMortgage.com: Your Ultimate Guide to Home Loans for People With Disabilities (Apr. 10, 2024).
Molly Grace for Business Insider Inc., via BusinessInsider.com: How to Use SSI, SSDI, or Other Disability Benefits to Qualify for a Mortgage (Dec. 5, 2023).
Molly Grace for Business Insider Inc., via BusinessInsider.com: Will I Lose My SSI if I Buy a House? (Dec. 11, 2023).
Taylor Freitas for Bankrate LLC (part of Red Ventures), via Bankrate.com: Can You Buy a Home on Disability? (Mar. 3, 2023).
And as linked.
More on topics: Less Than 5% of U.S. Housing Is Accessible to Older, Disabled Residents; April Is Fair Housing Month. How Fair and Available Is Real Estate?
Photo credits: Marcus Aurelius (both), via Pexels/Canva.