Home loans for disabled buyers are widely available
It is a common misconception that people with disabilities are ineligible for mortgages or cannot purchase homes. Fortunately, that is not the case. Home loans for disabled buyers could help you become a homeowner or improve your current mortgage quickly and easily. Applying for a mortgage now could be a good idea even if you’ve been denied in the past.
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Can I buy a home on disability income?
Yes, you can buy a home on disability income, as long as it is stable, reliable, and expected to continue for the foreseeable future. Lenders, including those offering government-backed loans like FHA and VA loans, accept disability income as a qualifying source for mortgage applications.
According to the Fair Housing Act, lenders can’t inquire about your disability. However, they will inquire about your income, which can be a major barrier for disabled home buyers.
Staying within your lender’s debt-to-income ratio limits can be difficult if you have little or no income from standard employment. Fortunately, many mortgage programs will accept disability income on your application.
Can I Buy a House on SSDI or SSI?
You can buy a house on Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI). Both SSDI and SSI are stable sources of income, and lenders accept them as qualification for home loans for disabled.
Eligible income sources for a mortgage can come from:
- Long-term disability income from an employer or insurer
- Supplemental Security Income (SSI) through Social Security
- Social Security Disability Insurance (SSDI)
These types of income are allowed under all the major home loan programs, including conforming, FHA, VA, and USDA mortgages.
However, mortgage lenders set their own lending guidelines and may choose not to accept certain kinds of income. So if you’re denied due to disability income on your application, try again with a different lender. You might receive approval elsewhere.
Disability income requirements
Like any other form of income, disability income needs to be properly documented for a mortgage lender to count it on your home loan application. The most important thing is that you can verify your disability income will continue for at least three years or that you have a guaranteed job once you’ve recovered at the same income level as before. In the latter case, you would qualify for the lower of the two monthly income streams.
If you receive long-term disability income or insurance benefits, your lender will need to see a disability policy or statement from the payer of the benefits (typically the insurance company or a former employer).
The documentation requirements for SSI and SSDI depend on who is applying for the loan.
If the mortgage applicant is the person receiving SSI or SSDI income, you can document it one of two ways:
- The Social Security Administrator’s (SSA) Award Letter; or
- Proof of current receipt
If the mortgage applicant is not the person receiving Social Security benefits (for example, a parent buying a home for a disabled child), they will need to present both of the documents above. They’ll also need to prove the income will continue for at least three years—for example, by verifying the recipient’s age.
Home loans for disabled home buyers
People with disabilities and parents who want to buy a home for a disabled child can get special mortgages. Homeownership assistance programs exist for people who are not disabled but live with qualified disabled people. A caregiver or home health care provider who lives with a disabled family member often qualifies for a special mortgage offering.
If you qualify for Medicaid in your state or get disability payments from the government, you may be able to use one of a number of special mortgage programs. That still holds true if you have a low income despite working.
Who will own and occupy the property and how they will pay their mortgage will determine the program’s requirements. In addition, they vary depending on whether the program is local, state, or federal.
Here are several of the best-known home loan programs for disabled persons.
1. Fannie Mae HomeReady Loan
Fannie Mae HomeReady is a special home loan program that helps people with low to moderate incomes and good credit get affordable financing options, including disabled people.
The program aims to help people who want to buy their own home by giving them competitive interest rates, lower down payment requirements (as low as 3%), and more flexible credit rules. HomeReady also helps disabled borrowers by taking into account non-traditional income sources like Social Security and long-term disability benefits.
In fact, Social Security Disability Insurance (SSDI) and Supplemental Security Insurance (SSI) are both acceptable income sources for the HomeReady loan program.
Who qualifies for HomeReady?
To qualify, disabled home buyers need the following:
- A credit score of 620 or higher
- At least a 3% down payment
- Low- to moderate-income (no more than 80% of their area’s median income)
The good news is that your down payment money doesn’t have to come out of your own savings. HomeReady lets you cover the entire down payment using grants, down payment assistance funds, or money gifted from a family member or caretaker.
However, many other mortgage programs require the buyer to pay at least some of the purchase price out of pocket. It can be a challenge if your income is fixed.
Buying with non-occupant co-borrowers under HomeReady
Along with its low down payment, HomeReady offers a big benefit: It allows “non-occupant co-borrowers.” A non-occupant co-borrower does not live with you but is included in your mortgage application process.
You can use your non-occupant co-borrower’s credit history or income to help you qualify for a loan if you don’t meet the credit or income limits on your own.
For example, a parent or sibling with strong credit and a high income are often added to their disabled family member’s mortgage. Remember that the total income counted toward your mortgage qualification must remain below HomeReady income limits.
Fannie Mae does not offer HomeReady loans directly, allowing home buyers to shop among lenders for the best rate.
2. FHA home loans for disabled persons
FHA loans, the Federal Housing Administration backs, make it easy and affordable to become a homeowner by offering government-insured mortgages with low credit scores and low down payment requirements.
These loans are made for people with low credit scores or low incomes who may have trouble getting traditional mortgages. This includes people with disabilities.
FHA loans accept disability income as a qualifying source, provided it is stable and well-documented. FHA loans help disabled people achieve their dream of homeownership by offering low down payment options (as low as 3.5% for qualified borrowers), flexible credit rules, and competitive interest rates. This gives everyone the same opportunities.
Who qualifies for an FHA loan?
FHA loans allow both SSI and SSDI income on your mortgage application. FHA rules say that you can use any of the following documents to prove disability income:
- Federal tax returns
- The most recent bank statement showing receipt of income from social services programs
- A Proof of Income Letter, also known as a “Budget Letter” or “Benefits Letter” that shows income from the SSA
- A copy of the borrower’s Social Security Benefit Statement
Another benefit of the FHA loan is that you can cover 100% of the down payment and closing costs using down payment assistance or gifted money. This eliminates the need to save up a large amount of money before you can buy a home.
On the downside, you’d probably have to pay the FHA’s mortgage insurance until you pay off the house—unless you refinance out of the loan sooner.
3. VA home loans for disabled veterans
The U.S. Department of Veterans Affairs-backed VA loan program is among the best home loan programs available. In addition to having some of the lowest mortgage rates available, VA loans don’t require a down payment. This makes VA loans appealing to any veteran or service member.
But there are more VA loan benefits for veterans with medical problems or disabilities caused by their service:
- You can include VA disability income on your mortgage application.
- You are exempt from paying the VA loan funding fee. Spouses of veterans who died in the line of duty may also be exempt
- There are no minimum service requirements. 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. Requirements vary by state, level of disability, and other factors. Check with your state’s tax authority for more information
You’ll also need to meet the VA’s standard lending requirements to qualify for one of these loans.
Income from disability benefits can be used to satisfy VA loan income requirements. Technically, there’s no minimum credit score to qualify for a VA loan. However, many lenders require a FICO score of at least 580 to 620.
4. USDA home loans for disabled persons
The USDA loan program, which the U.S. Department of Agriculture backs, is another zero-down mortgage that enables qualified borrowers with disability income to purchase a home. The USDA offers two loan programs: USDA Direct and USDA Guaranteed.
USDA Guaranteed Loans
While the USDA backs these loans, they don’t come directly from the federal government. They come from private lenders that the USDA has approved. Many mainstream mortgage lenders can offer USDA Guaranteed loans.
USDA Guaranteed loan requirements typically include the following:
- Income is no higher than 15% above your area’s median income
- A credit score of at least 640
- The home you’re buying must be in a USDA-approved “rural area”
USDA Direct Loans
Homebuyers with disabilities whose income falls below the area’s median income may qualify for a USDA Single Family Housing Direct Loan.
The Direct Loan is a subsidized mortgage program, meaning that the USDA will help pay for a portion of the homeowner’s monthly mortgage payments. The applicant’s household income determines their eligibility for this housing program and how much payment assistance they will receive.
Another significant advantage of the USDA Direct mortgage program is that fixed interest rates can be as low as 1% (when modified by payment assistance).
Who qualifies for a USDA Direct Loan?
USDA-subsidized home loans are available to borrowers, including disabled borrowers, who:
- Do not have safe, decent, or sanitary housing
- Are unable to get an affordable mortgage
- Meet citizen or eligible non-citizen requirements
- Are not barred from federal loan programs
- Have qualifying low income for their area
In addition, the home being purchased must meet the following guidelines:
- Square footage usually can’t exceed 2,000
- The home price must be within local loan limits
- The home must not be designed for “income-producing activities”
Those who qualify for a USDA Direct Loan can use the funds to purchase a new or existing home. In addition, they can build, repair, or renovate a house.
The payback period ranges between 33 and 38 years. This extended repayment with the low rate help make payments affordable.
How to apply for a USDA Direct Loan
Unlike USDA Guaranteed loans, private lenders do not offer the USDA Direct Loan. You’ll have to apply with your local Rural Development Office. Be aware that application processing times could be longer and the process could be less convenient. Buyers who can qualify for the USDA Guaranteed loan program should try that first.
Buyers with moderate incomes who don’t qualify for the USDA’s subsidized program can still access a USDA Rural Housing loan. It has looser guidelines but still allows zero down and offers below-market mortgage rates.
5. HUD Housing Choice Vouchers (Section 8 homeownership voucher program)
The Section 8 program run by the U.S. Department of Housing and Urban Development (HUD) is best known for offering rental housing assistance to low-income families. But there’s also a lesser-known Section 8 housing program for home buyers, called the “Housing Choice Voucher (HCV) homeownership program.” What’s more, this program provides housing assistance to disabled buyers who meet its eligibility requirements.
“Keep in mind that not all lenders underwrite these types of loans,” cautions Jon Meyer, The Mortgage Reports loan expert and licensed MLO. “You’ll need to use one of the program’s participating lenders.”
People who are eligible for Section 8 rental assistance can use their voucher to buy a home instead, thanks to the homeownership voucher program. In this case, HUD would assist in covering mortgage payments and other homeownership costs instead of rent.
Who qualifies for HUD’s Housing Choice Voucher program?
To qualify for this housing assistance program, you’ll need a current Section 8 voucher. If you do not have one, you can talk to your local public housing authority about meeting with a housing counselor to start the process.
Keep in mind that not all PHAs participate in the HCV homeownership program. Section 8 voucher waiting lists can be lengthy.
Other requirements for the Section 8 homeownership program include:
- Household income not below the monthly federal Supplemental Security Income (SSI) benefit for an individual living alone
- Buying an acceptable property according to HUD’s guidelines
- Participation in PHA’s pre-assistance homeownership and housing counseling program
For qualified home buyers, the homeownership voucher funds can be used for:
- Mortgage principal and interest, real estate taxes, and homeowners insurance
- Mortgage insurance
- Utilities, maintenance, and major home repairs
- Costs to make the home accessible for independent living if needed. Home improvements can include building ramps
As a housing voucher holder, you’ll pay around 30% of your adjusted monthly income for housing.
Financial assistance and grants for disabled home buyers
Unless you qualify for a zero-down USDA or VA loan, you’ll likely need to come up with cash for the down payment and closing costs on your new home. There are, luckily, many programs that can help reduce or get rid of these out-of-pocket costs. Additionally, disabled homebuyers have greater access to these programs than other buyers.
Down payment assistance grants
Every state has a selection of down payment assistance programs (DPAs), which offer funds to help cover home buyers’ down payment and/or closing costs. These are typically geared toward first-time home buyers and home buyers with low incomes.
Down payment assistance comes in two different forms:
- Grants: Assistance that never has to be repaid
- Loans: Assistance that must be repaid. DPA loans typically have low or no interest, and many are forgivable if the homeowner keeps the home a set number of years (often 5-10)
These assistance programs will typically be offered by your state’s Housing Finance Agency or county and local governments. Some non-profit organizations also provide DPAs.
You can learn more about down payment grants here, or ask your real estate agent or loan officer to help you find programs once you’ve started the home-buying process.
VA grants for disabled veterans
The Department of Veteran Affairs has home loan programs and home modification grants to help disabled veterans buy a home or make their current home more accessible.
To qualify for these programs, the veteran must have a service-connected disability and currently live in or purchase the home in question.
- Specially Adapted Housing (SAH) Grants: The VA’s largest grant, used to “buy, build, or change your permanent home” (a home you plan to live in for a long time). This grant is only available to 120 disabled veterans each year
- Special Housing Adaptation Grants (SHA) Grants: A lower grant amount than the SAH grant, used to “buy, build, or change your permanent home”
- Temporary Residence Adaption (TRA) Grants: Intended to help disabled veterans make accessibility upgrades to a family member’s home they’re living in temporarily. To qualify for a TRA grant, you must be eligible for either an SAH or SHA grant
USDA Single-Family Housing Repair Grant
The U.S. Department of Agriculture offers a Housing Repair Grant to help low-income families “repair, improve, or modernize homes, or remove health and safety hazards.”
The USDA Housing Repair Grant can provide eligible homeowners with a grant of up to $10,000 or a loan of up to $40,000 to pay for home repairs and upgrades. The more popular choice, loans, have a 20-year repayment period and a fixed interest rate of just 1%. You can also combine grants and loans to receive up to $50,000 in total assistance.
To qualify, the borrower must:
- Be the homeowner and occupy the house
- Be unable to obtain affordable credit elsewhere
- Have a family income below the “very low limit by county”
- For grants, be age 62 or older and not be able to repay a repair loan
Nonprofit help for disabled home buyers
Four major national programs can help low-income families and disabled people become homeowners.
National Disability Institute
The NDI’s mission is to build better financial futures for people with disabilities and their families. They do so through employment initiatives, technical housing assistance, financial education, and additional resources.
The NDI works with financial institutions, programs run by local and state governments, and other groups to help people with disabilities find housing.
Habitat for Humanity
Habitat for Humanity builds accessible homes as defined by the Americans with Disabilities Act (ADA). It can also provide affordable mortgages to those approved for its program.
You apply through your local Habitat for Humanity affiliate, and you must be willing to take an active role in the process of constructing your new home. This is known as “sweat equity.”
Note that sweat equity is not limited to the physical construction of the home. Habitat says, “Sweat equity can also include taking homeownership classes or performing volunteer work in a Habitat ReStore.” Homebuyers with disabilities qualify for this program.
Rebuilding Together Americorps
Another option is Rebuilding Together AmericaCorps. This agency prides itself on building affordable housing for families with one or more disabled members.
According to its site, 51% of households served by Rebuilding Together “have a resident with a disability, many of whom have mobility issues that make it difficult to remain safely at home.”
In addition to building affordable housing, the organization works to improve existing homes to make them safer and more accessible, so disabled individuals can remain at home more easily.
Homes for Our Troops
Homes for Our Troops gives veterans hurt while fighting overseas after September 11, 2001 a place to live without a mortgage. The program provides “custom homes that are specially adapted” so they can live in “a safe and barrier-free environment.”
To qualify, you must be retired or in the process of retiring and pass a criminal and credit background check. On the Homes for Our Troops website, you can ask for help and find more information about housing for veterans.
Parents buying a home for a disabled child
Parents and caretakers of people with disabilities 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” even though they won’t live in it. This means they can get better mortgage rates and loan terms than if they bought the property as a second home.
Fannie Mae loans for buying a house for your child
Parents who want to buy a home for their disabled child can choose a Fannie Mae-backed conforming loan as one option. With a Fannie Mae-backed loan, 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.”
Fannie Mae offers a wide range of conforming mortgage loans for parents or guardians wanting to buy a home for their child. Options include:
- 3% down “Conventional 97” loans
- 5% down “Conventional 95” loans
- 10% down “piggyback loans” with no private mortgage insurance (PMI)
- 20% down conventional mortgages with no PMI
Since the home is owner-occupied, you can finance it at a low rate without the interest rate markups that come with second homes and investment properties.
Using Social Security benefits
If a parent or legal guardian gets disability benefits from Social Security for a child or other dependent, they can use this income to qualify for a mortgage.
In order for the disability income to be eligible, the parent or guardian needs to show an SSA award letter, proof of current receipt, and proof that the income will continue for at least three years.
Home loans for disabled buyers FAQ
Yes, common home loans for disabled buyers include government-backed options such as FHA loans and VA loans, which offer lenient credit requirements, lower down payments, and competitive interest rates. Also, programs like Fannie Mae’s HomeReady Mortgage and Freddie Mac’s Home Possible Program are designed to meet the needs of disabled and low- to moderate-income borrowers, making homeownership more accessible and affordable.
There are special programs like Fannie Mae’s HomeReady Mortgage and Freddie Mac’s Home Possible Program that can help disabled people buy homes. There are also government-backed loans, like FHA and VA loans, that have easier credit requirements and lower down payments. Also, different state and local housing agencies, non-profit organizations, and grants help disabled people become homeowners by giving them money and resources. Disabled homebuyers can also find help through HUD’s local home-buying programs and the National Council of State Housing Agencies.
Yes, there are home loan options available for disabled people with bad credit. Even though it can be harder to get a mortgage if you have bad credit, FHA loans are well suited for disabled people who want to buy a new home. This type of loan is an attractive option for disabled individuals with bad credit, as they accept credit scores as low as 500 with a 10% down payment or 580 with a 3.5% down payment.
Yes, FHA loans accept disability income, as long as it is stable, reliable, and likely to continue for at least three years from the date of the mortgage application. Borrowers using disability income to qualify for an FHA loan need to provide proper documentation to verify the source and amount of the income. This documentation may include: award letters, bank statements, and medical documentation, to name a few.
The U.S. government defines disability through the Social Security Administration (SSA) and the Americans with Disabilities Act (ADA). A person is considered disabled by the SSA when they have a medical condition that keeps them from doing substantial gainful activity for at least 12 months or is expected to result in death. The ADA defines a person with a disability as someone who has a physical or mental impairment that substantially limits one or more major life activities. Both of these definitions focus on how the disability affects a person’s ability to do important tasks or take part in everyday activities.
Explore all your home buying options
Mortgage lenders can connect you with loan programs that help people with disabilities become homeowners. Shop with several competing lenders to find the best program and most competitive interest rate for you.
In addition, be sure to ask your loan officer, real estate agent, or Realtor about financial assistance programs available in your area. There are many assistance programs for disabled home buyers and especially for low-income families or individuals. These programs can make buying your own home more affordable than many people expect.