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A MoneyTips Guide To Home Loans For People With Disabilities

TLDR

What You Need To Know

  • If Social Security disability income is your only source of income, you may still be able to get approved for a mortgage
  • Several federal laws, like the Fair Housing Act and Equal Credit Opportunity Act, prohibit lenders from discriminating against people with disabilities
  • A disability loan is a personal loan used to cover expenses during the period between applying for government disability benefits and qualifying for those benefits

Contents

Buying a home is often the most significant purchase you’ll make and one of the tenets of the American Dream. Though some people might assume that a disability can make it difficult or impossible to get a home loan, individuals with disabilities have plenty of options for getting a mortgage. 

Even if your sole source of income is from disability benefits, there are a number of home loans you can get approved for. Applying for a mortgage with a disability is very similar to any other loan application. Individuals with disabilities may have access to additional resources to bring homeownership within closer reach or to retrofit homes to accommodate a disability.

What Is a Disability Loan?

Before discussing what a disability loan is, let’s first talk about what a disability is. 

According to the U.S. Centers for Disease Control and Prevention, a disability is defined as any condition that can limit a person’s ability to do certain activities and engage with the world around them.[1] Disabilities can come in many different shapes and sizes, and are more than just a list of known ailments. 

Some people are born with disabilities, while others can develop disabilities due to illness or injury. Examples of disabilities can include conditions that impact an individual’s ability to see, hear, move, communicate, think or learn. 

Individuals who have a disability from birth may qualify for disability benefits as children. On the other hand, individuals who have suffered an injury at work may be looking to apply for disability benefits for the first time.

A disability loan is a personal loan used to cover expenses during the period between applying for government disability benefits and qualifying for those benefits. Since approval for disability benefits can take several months, many people who are applying for the first time need assistance paying for everyday expenses while they wait for a government decision regarding whether they qualify and for how much money.

The review period for disability benefits can sometimes lead people to consider payday loans or cash advances to bridge the gap. However, these types of loans are risky, expensive and should almost always be avoided.

Can I Buy a Home on Disability Income?

Yes! It is possible to buy a home on disability income. There are many well-known home loan programs that accept disability income on their loan applications, including conforming mortgages and loans from the Federal Housing Administration (FHA), Veterans Affairs (VA) and United States Department of Agriculture (USDA).

Eligible income sources for these loan programs are: 

  • Long-term disability income from an employer or insurer
  • Supplemental Security Income (SSI) through the Social Security Administration
  • Social Security Disability Insurance (SSDI) income

While many lenders are perfectly fine with disability income on a loan application, lenders have the right to set their own lending guidelines. This means lenders can set their own guidelines. And since disability income doesn’t come with documentation guaranteeing long-term benefits, it could impact your eligibility for a loan.

Know your rights

If you have a disability and want to apply for a loan, you have certain rights that can protect you. Several federal laws, like the Fair Housing Act and Equal Credit Opportunity Act, prohibit lenders from discriminating against people with disabilities.[2][3] Knowing these rights and recognizing when they’re being violated can help you in your journey to obtaining a mortgage. Some of the laws in place to protect people with disabilities include:

Americans with Disabilities Act (ADA)

The Americans with Disabilities Act prohibits discrimination against individuals with disabilities, offering fair access to benefits and opportunities related to employment and more.[4]

Fair Housing Act

The Fair Housing Act offers protections in any federally-funded loan program by prohibiting housing discrimination against anyone with a disability.[2]

Section 504 of the Rehabilitation Act of 1973

Section 504 of the Rehabilitation Act of 1973 prohibits discrimination against anyone with a qualified disability. Any organization receiving federal financial assistance must allow individuals with disabilities opportunities to participate in federally-funded programs or services, benefit from employment opportunities and more.[5]

Equal Credit Opportunity Act (ECOA)

The Equal Credit Opportunity Act (ECOA) prohibits lenders from discriminating against borrowers with income from public assistance programs, such as disability income.[3] Though lenders can ask for documented proof of income, fair lending laws prohibit them from requiring additional documentation beyond ordinary market standards.

Disability income requirements

If you’re a first-time homebuyer applying for a mortgage, there are certain requirements for verifying disability income. 

Applying for a home loan with a disability is very similar to applying for a home loan in any other situation. The process of applying for a loan begins with getting your finances in shape, understanding the benefits and costs of homeownership, getting preapproved and making an offer.

Though the required documentation for each lender can vary, you can expect to have to provide:

  • The benefits letter from the Social Security Administration
  • Documentation of your finances, including cash accounts, investments, Social Security disability benefits and other income
  • Your Social Security number for a credit check
  • Details of any current loans or debt obligations

Home Loan and Grant Options for Disabled Individuals

Homebuyers who have a disability can benefit from a variety of home loan and grant options. These homeownership programs and grants include, but are not limited to:

Conventional loans

Conventional loans, or loans that are not backed by the government, can help individuals with disabilities buy a home. Conventional loans typically look for a credit score of at least 620, a minimum of 3% down and a debt-to-income (DTI) ratio under 50%.[6]

Fannie Mae

Fannie Mae offers home loan programs for both first-time and low-to-moderate-income home buyers. These programs, such as the HomeReady® mortgage, can help make homeownership more accessible for buyers with disabilities.

To qualify for Fannie Mae loans, the loan amount must not exceed the limits set by the Federal Housing Finance Agency ($647,200 for most counties in 2022). You also need to have a credit score of at least 620 and a DTI ratio of no more than 45%.[7]

FHA loans

Individuals with debt or a lower credit score may be able to qualify for a loan backed by the FHA. SSI and SSDI income can be used as qualifying income. Generally, you can get an FHA mortgage loan with a credit score as low as 500 with a downpayment of 10%, or 580 with a downpayment of 3.5%.[8]

VA loans

VA home loans are available for military veterans who are partially or fully disabled. VA loans also offer an exemption on the VA loan funding fee for home buyers receiving compensation as a result of a service-related disability. Finally, the VA has a Specially Adapted Housing (SAH) grant program that provides additional funding for disabled buyers who need to make home renovations to accommodate their disability.[9][10] Keep in mind that VA loans are an exclusive benefit of current and former members of the U.S. military.

Qualifying for a VA loan may be easier than qualifying for other types of loans. VA loans don’t have a minimum down payment requirement, nor do they impose a minimum credit score.

USDA loans

USDA loans, which help Americans buy homes in qualified rural areas, can also benefit home buyers with disabilities. To qualify for a USDA loan, you cannot earn more than 115% of the average income in the area where you want to purchase the home. There is no minimum down payment or credit requirement, but lenders will likely expect a DTI ratio of no more than 41%.[11]

HUD Housing Choice Voucher (HCV) Homeowner Program

The U.S. Department of Housing and Urban Development (HUD) offers a housing assistance program for disabled individuals (along with low-income individuals and the elderly) known as Housing Choice Vouchers or Section 8.[12]

While HCVs are primarily used in subsidizing rentals, the HCV Homeowner Program allows current participants in the HCV program to apply these vouchers toward purchasing a home and receiving monthly assistance with homeownership expenses.[12]

The HCV program is only available to first-time home buyers. All buyers must complete a pre-assistance and housing counseling program, and there are income and employment requirements (the employment requirement does not apply to disabled families or the elderly).

Additional Resources for Disabled Home Buyers

In addition to available home loans and grants, there are non-profits and other resources that may be able to help disabled home buyers fulfill their dreams of owning a home.

Habitat For Humanity

Habitat for Humanity helps provide housing by building and improving homes, including assistance for housing to accommodate individuals with disabilities. Habitat for Humanity has a non-discrimination policy, which means anyone can apply for housing or mortgage assistance. 

One of the requirements of Habitat for Humanity is to earn “sweat equity.” This, for many people, includes helping physically build their home. However, Habitat for Humanity works with disabled individuals to find appropriate sweat equity opportunities.

National Disability Institute

The National Disability Institute (NDI) is an organization focused on financial education and empowerment for individuals with disabilities. The NDI is a helpful resource for finding information on state and local housing assistance programs and providing guidance for commonly asked questions regarding housing. 

Homes For Our Troops

Homes for Our Troops (HFOT) builds and donates custom homes designed specifically for veterans injured in the Iraq-Afghanistan War after 9/11/2001. HFOT also provides assistance for veterans seeking information on housing support programs, as well as links to various resources for veterans.

Rebuilding Together AmeriCorps

Rebuilding Together is a non-profit that aims to create safe and healthy homes for people to live in. Rebuilding Together brings volunteers and an in-house contractor team to the homes of individuals in need to provide repairs that can improve homeowners’ quality of life.

FAQ: Frequently Asked Questions

Many people who have a disability and are interested in getting a loan find themselves asking the following common questions:

Can you get a mortgage with only Social Security Disability Income?

Yes. If Social Security Disability Income is your only source of income, you may still be able to get approved for a mortgage. You can get a mortgage with only this income, provided your DTI ratio, credit score and other qualifying criteria meet the requirements of the loan you’re applying for.

Can I get a loan from my Social Security benefits?

No. You cannot get a loan from the Social Security Administration. Though there may be an option for a one-time emergency advance during your initial application for Social Security benefits.[12]

Everyone Deserves to Be a Homeowner

Just because you have a disability doesn’t mean you can’t enjoy the benefits of owning a home. Even if you’re unable to work, you may still be able to qualify for a mortgage with income from disability benefits. If you’ve been struggling to qualify for a loan, remember that there are several home loans, grant programs and non-profit organizations that can help you realize the dream of owning a home.

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  2. The score generally ranges from 300 (low) to 850 (excellent). It’s calculated by looking at your previous credit history.
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  1. Centers for Disease Control and Prevention. “Impairments, Activity Limitations, and Participation Restrictions.” Retrieved June 2022 from https://www.cdc.gov/ncbddd/disabilityandhealth/disability.html

  2. U.S. Department of Housing and Urban Development. “Housing Discrimination Under the Fair Housing Act.” Retieved June 2022 from https://www.hud.gov/program_offices/fair_housing_equal_opp/fair_housing_act_overview

  3. The United States Department of Justice. “The Equal Credit Opportunity Act.” Retrieved June 2022 from https://www.justice.gov/crt/equal-credit-opportunity-act-3

  4. United States Department of Justice Civil Rights Division. “Information and Technical Assistance on the Americans with Disabilities Act.” Retrieved July 2022 from https://www.ada.gov/

  5. U.S. Department of Health and Human Services. “Your Rights Under Section 504 of the Rehabilitation Act.” Retrieved June 2022 from https://www.hhs.gov/sites/default/files/ocr/civilrights/resources/factsheets/504.pdf

  6. Rocket Mortgage. “What Is A Conventional Loan?” Retrieved June 2022 from https://www.rocketmortgage.com/learn/conventional-mortgage

  7. Fannie Mae. “Eligibility Matrix.” Retrieved June 2022 from https://singlefamily.fanniemae.com/media/20786/display

  8. Experian. “How to Qualify for an FHA Loan.” Retrieved July 2022 from https://www.experian.com/blogs/ask-experian/how-to-qualify-for-fha-loan/

  9. U.S. Department of Veterans Affairs. “VA funding fee and loan closing costs.” Retrieve June 2022 from https://www.va.gov/housing-assistance/home-loans/funding-fee-and-closing-costs/#va-funding-fee-rate-charts

  10. U.S. Department of Veterans Affairs. “Disability housing grants for Veterans.” Retrieved June 2022 from https://www.va.gov/housing-assistance/home-loans/funding-fee-and-closing-costs/#va-funding-fee-rate-charts

  11. United States Department of Agriculture. “Rural Development Single Family Housing Guaranteed Loan Program.” Retrieved June 2022 from https://www.rd.usda.gov/sites/default/files/rd-grhlimitmap.pdf

  12. U.S. Department of Housing and Urban Development. “Housing Choice Vouchers Fact Sheet.” Retrieved June 2022 from https://www.hud.gov/topics/housing_choice_voucher_program_section_8

ICYMI

In Case You Missed It

  1. If you apply for a loan using disability income, you’ll have to provide the benefits letter from the Social Security Administration

  2. Lenders who receive federal funding are prohibited from discriminating against borrowers who have a disability

  3. There are several home loan and grant programs for disabled home buyers, as well as other resources like non-profit organizations

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