Home Loans for Disabled Individuals: Options, Benefits, and How to Apply

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• It's possible to buy a home when all or most of your income comes from disability benefits or insurance.
• You'll need to provide proper documentation of your income and ensure that you meet the lender's credit standards.
• Lenders can't ask you about the nature of your disability or request a letter from your physician.

If you're using a mortgage to purchase a home, you'll need to meet your lender's requirements to qualify for a mortgage . Typically, this comes down to just a few things: credit, income, debts, and down payment.

When looking at the money you'll be using to make your mortgage payments each month, mortgage lenders will consider income that comes from a variety of different sources, including child support payments, public assistance income, and yes, disability benefits.

Understanding home loans for disabled individuals

As long as homeownership doesn't push your debt-to-income ratio too high, it's possible to buy a home when all or the majority of your income comes from disability benefits or insurance.

In the eyes of a mortgage lender, disability income is basically viewed like any other income, with one exception that can work in your favor (more on that in a minute).

The lender wants to make sure that you can do two things: afford your monthly payments now and continue affording your monthly payments for the foreseeable future.

If your income is sufficient and you'll continue receiving it for at least three years, you should be able to use it to qualify for a mortgage and purchase a home — as long as you meet the lender's other requirements, as well.

Types of home loans available

There are several types of mortgages you can apply for if you're on disability. These include:

FHA loans

FHA loans are mortgages guaranteed by the Federal Housing Administration. They allow for lower credit scores (down to 500, in some cases), and you need just a 3.5% to 10% down payment. They accept disability payments as a source of income as long as it's stable and not going to expire within three years of taking out the loan.

VA loans

Another option is a VA loan — but only if you're a military member, veteran, or married to one. Disability and VA disability income are both accepted on this loan program. If you have a service-connected disability, you're even exempt from the program's VA funding fee. VA loans have no down payment requirements.

USDA loans

If you're willing to buy a home in a rural part of the country, you can also get a USDA loan, which is sponsored by the US Department of Agriculture. These also allow you to use disability income to qualify, as long as it's long-term income. Like VA loans, USDA loans don't require a down payment either.

Fannie Mae HomeReady and Freddie Mac Home Possible

Fannie Mae and Freddie Mac offer loan down payment options with their HomeReady and Home Possible loans. Both allow you to qualify based on long-term disability income, as long as you don't make more than 80% of the area median income. You also need a minimum credit score of 620 or more.

Eligibility requirements

The exact eligibility requirements you'll need will depend on the loan program you choose. Generally speaking, though, you'll need to go through these steps:

Income verification

When using disability income to qualify for a mortgage, you'll go through the same process as any other borrower. The lender will look at your credit, debts, assets, and all sources of income you provide.

To show proof of disability income, you'll need to provide some verification that you're currently receiving benefits and that they aren't set to expire within the next three years. The mortgage documentation you provide will also need to specify how much you receive, and how often your benefits are paid.

DTI and credit score requirements

In addition to providing information about your disability income (and any other sources of income you have), you'll need to meet your lender's down payment and credit requirements. This means you'll likely need:

• A minimum credit score of 580 or 620, depending on the type of mortgage loan you get. FHA mortgages allow scores of 580 or lower, depending on your down payment amount. For a conventional mortgage, you'll need a score of at least 620.
• A maximum debt-to-income ratio of 50%. Again, depending on the type of loan you get and the rest of your finances, your max ratio may be a little lower or higher.

You will also need a down payment of at least 3%, unless you qualify for a loan with 100% financing. Conventional loans require a minimum of 3% down, while FHA loans require at least 3.5%. VA and USDA loans allow 0% down.

Disability income considerations

Disability income can come from a few different sources, including:

• Social Security Disability Insurance (SSDI): SSDI, which is administered by the Social Security Administration (SSA), pays benefits to those who have a qualifying work history, meaning they've paid enough into the program when they were working to receive benefits.
• Supplemental Security Income (SSI): SSI is also administered by the SSA and pays benefits to eligible individuals based on financial need.
• Employer-provided or private disability insurance: Many employers offer disability insurance that replaces a certain portion of your income if you develop a disability. Individuals can also purchase their own policies from private insurance providers.
• VA disability compensation: There are home loans for veterans with disabilities that are service-related. You may be eligible for monthly compensation from the Department of Veterans Affairs.

If the income you receive isn't taxed, your lender may "gross it up," meaning it inflates your income by a certain percentage to account for the fact that you get to keep the full amount.

"As long as this income is deemed non-taxable, you can gross up the monthly income by 125%," says Brian Quigley, founder of Beacon Lending .

For example, if you receive $2,000 of non-taxable SSDI income each month, the lender is able to look at that income as equal to $2,500 per month, since you don't pay taxes on it.

"This is very important, especially if your debt-to-income ratio is teetering on the side of the loan not being approved," Quigley says. "That extra 25% is essential!"

Benefits of home loans for disabled individuals

Many loan programs allow you to use disability income to qualify. These programs offer disabled consumers several benefits, including:

Accessible housing options

Disabled persons can use their disability income and several different loan programs to purchase properties that align with their physical and mental needs. Some loan programs, like FHA loans, for instance, even allow you to finance the costs of a home — and any repairs or accessibility updates it needs — with one single loan.

Financial security

These loan options also ensure disabled persons have stable housing and a long-term path toward wealth-building. Plus, with a fixed-rate loan on their side, they also enjoy steady monthly payments that make it easy to budget and plan for.

Lower down payment requirements

Most loan programs for disabled individuals have low down payment requirements. Fannie Mae and Freddie Mac loans ask for a 3% down payment, while FHA loans require 3.5%. With USDA and VA loans, you need no down payment at all.

How to apply for a home loan on disability

If you're ready to apply for a loan, there are a few steps you'll need to follow.

Finding the right lender

The first step is to find which lender you want to use. There are many options to explore, including big banks, local credit unions, or online lenders. Make sure to compare a few to ensure you're getting the best rate and terms.

You can also work with a mortgage broker who can help you shop multiple options and choose the best one.

Required documentation

You'll need documentation to prove your income, too. For disability income, this means one of the following:

• Social Security Administration award letter
• SSA-1099 form
• Copy of your disability insurance policy
• VA disability award letter
• Other documentation showing that you currently receive benefits

You may also need to provide other documentation, like W-2s, tax returns, or bank statements, though your loan officer can guide you on which documents you need to submit.

Application process

Once you've found a lender, you'll fill out their application and submit your documentation. After the lender underwrites your loan, you'll pay your down payment and closing costs and close on your loan.

Buying a home on disability FAQs

What types of home loans are available for disabled individuals?

Disabled individuals can use FHA loans, VA loans, USDA loans, and special programs from Fannie Mae and Freddie Mac.

What are the eligibility requirements for home loans for disabled individuals?

It depends on the type of loan, but disabled individuals can expect to need documentation for income that will last for at least three years. You will also need to meet certain down payment, credit score, and debt-to-income ratio requirements.

Can disability income be used to qualify for a home loan?

Yes, disability income is considered as part of your total income, which can help qualify for various home loan options. It will need to be "long-term" disability, which will last for at least three years after closing.

What are the benefits of FHA loans for disabled individuals?

FHA loans offer lower down payment requirements and flexible credit standards, and you can roll the costs of accessibility upgrades into your loan amount, too.

How do I apply for a home loan as a disabled individual?

Start by finding a lender experienced in loans for disabled individuals. Then, gather required documentation, and follow their application process.