Some Americans mistakenly believe they can’t own a home or get a mortgage because of their disabilities.
That’s an understandable misconception. Fortunately, it’s wrong.
These types of loans can be easier to qualify for than traditional home loans, with some of the lowest interest rates!
That empowers disabled persons to achieve homeownership or get into a better home loan than they are in now.
Even if you didn’t qualify before, now could be the time to apply for one of today’s programs.
What About If I’m On Disability Income?
Income can be a significant challenge for a disabled person hoping to own their first home. It can be challenging to meet a mortgage lender’s standards if you have low to zero income from standard employment.
Eligible income sources for a mortgage:
- Long-term disability income
- Supplemental Security Income (SSI)
- Social Security Disability Insurance (SSDI)
These income types are allowed under all the major home loan programs, including conforming, FHA, VA, and USDA mortgages.
Disability Income Requirements in 2021
Like any form of income, disability income will need to be properly documented to determine its edibility towards a home loan.
Suppose you receive long-term disability income or insurance. In that case, your lender will need a copy of the disability policy or benefits statement from the benefits payer.
There are certain requirements for Supplemental Security Income (SSI) and Social Security Disability Insurance (SSDI) depending on who’s applying for the loan.
If the mortgage application states receiving SSI or SSDI income, it can be documented one of two ways:
- A certified letter from the Social Security Administrator’s (SSA)
Disabled Home Buyer Mortgage Programs
Special mortgages exist for those with disabilities and parents buying a home for a disabled child.
Also, there are mortgage programs for people who live with certified disabled residents. For example, a caretaker who shares a home with their disabled sibling might get a special rate on their mortgage.
Do you receive government disability income? You might be eligible for several mortgage programs, even if you earn a low income besides.
Each program varies on who will own and occupy the property and how the occupants pay the mortgage. There will also be changes if you decide to go with a federal, state, or local program.
What are the best programs for disabled home buyers?
Fannie Mae for disabled buyers
Fannie Mae is one of two major mortgage agencies that back most U.S. home loans. Your Loan officer will refer to mortgages backed by Fannie and Freddie as ‘conforming loans.’
There is a wide variety of conforming loans available, but the best Fannie Mae program for disabled home buyers is the HomeReady mortgage. To qualify you need:
- A credit score of 620 (or higher)
- Low- to moderate-income (no more than 80% of their area’s median income)
Specifically under this program long-term disability and Social Security benefits are both acceptable sources of income for your application.
Besides, you only need a 3% down payment. And guess what? It doesn’t NEED to come out of your own savings! You are free to cover the entire down payment using down payment assistance funds, grants, or money gifted from a family member.
In comparison, many other mortgage programs require the buyer to pay some of the purchase price from their own savings. This can be quite difficult for someone living on disability income with limited finances.
One of the main benefits of Fannie Mae’s HomeReady loan is that it allows ‘non-occupant co-borrowers’. What is a ‘non-occupant co-borrower’ you ask? It is someone who does not live with you but is included on your mortgage application as insurance for the lender.
You can include credit or income to qualify for a loan potentially getting an even better home than you could before. For example, a parent or sibling with good credit and income could be included on their disabled family member’s home loan.
Finally, this program will allow you to count additional household income on your application. Homebuyers with low income could increase their loan amount by adding income from potential renters or roommates.
Note: Fannie Mae does back these mortgages but does not offer them directly on their site or anywhere for that matter. Instead you go through an approved mortgage lender such as Pacific Funding Mortgage Division and start the application process here.
Disabled Veterans VA home loans
The VA loan program is one of, if not, the best home loan available . No down payment required and amazingly low mortgage rates. Making it an attractive option for all veterans and service-members.
But there are additional benefits for disabled veterans:
- VA disability income can be counted on your mortgage application.
- You are exempt from paying the VA loan funding fee. Spouses of veterans who’ve died in the line of duty may also be exempt.
- If you have a service-connected disability, there is no minimum time to serve before you’re eligible for a VA home loan.
- You may be eligible for a property tax exemption and/or a mortgage tax credit to reduce your taxable income.
You’ll also need to meet the VA’s standard lending requirements to qualify for one of these loans.
VA loan income requirements can be met by disability income. Technically, there’s no minimum credit score to qualify for a VA loan. However, many lenders require a FICO score of at least 580-620.
Buying a home for a disabled child? Here’s what we say parents
Parents and caretakers of disabled individuals can access special mortgage programs to buy a home for their adult child.
These programs allow parents to buy the home as an ‘owner-occupied residence,’ despite them not living in the home. This means they can get better mortgage rates and loan terms than if they bought the property as a second home.
Thanks to Fannie Mae a home purchase counts as ‘owner-occupied’ if it’s a “parent or legal guardian wanting to provide housing for their handicapped or disabled adult child.”
Fannie’s guidelines state, “If the child is unable to work or does not have sufficient income to qualify for a mortgage on his or her own, the parent or legal guardian is considered the owner/occupant.”
This loophole opens up a wide range of conforming mortgage loans for parents or guardians wanting to buy a home for their child. Options include:
- 3-5% down Conventional loans
- 10% down “piggyback loans” with no private mortgage insurance (PMI)
- 20% down conventional loans with no PMI
Since the home is considered to be owner-occupied, it can be financed at a low rate.