Home loans for disabled buyers are widely available
Some people think they can’t own a home or get a mortgage because of a disability. That’s an understandable misconception. Fortunately, it’s wrong.
Home loans for disabled buyers can be a fast track to homeownership or to a better mortgage than you’re in now. Even if you’ve been turned down for a home loan before, now could be the time to apply for one of today’s programs.
In this article (Skip to...)
- Disability income
- Home loan options
- Fannie Mae loans
- VA loans
- USDA loans
- HUD Section 8
- Bad credit home loans
- Parents buying for a child
- Grants and aid
- Additional resources
Can I buy a home on disability income?
The Fair Housing Act says lenders should not ask about your disability. However, they will ask about your income, and income can be a major challenge for home buyers who have a disability.
With low or no income from standard employment, it can be hard to fall within your lender’s debt-to-income ratio limits. Thankfully, many home loan programs are happy to accept disability income on your application.
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 are allowed to set their own lending guidelines, and some 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 be approved elsewhere.
Disability income requirements
Like any other form of income, disability income will need 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.
If you receive long-term disability income or insurance benefits, your lender will need to see a disability policy or statement from the benefits payer (typically the insurance company or a former employer).
Documentation requirements for Supplemental Security Income (SSI) and Social Security Disability Insurance (SSDI) depend on who is applying for the loan.
If the mortgage applicant is the person receiving SSI or SSDI income, it can be documented in 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
Special mortgages exist for people with disabilities and parents buying a home for a disabled child. There are also mortgage programs for non-disabled people who live with qualified disabled residents. For instance, a caretaker or home health care worker who shares a home with a disabled family member might get a special mortgage.
If you receive government disability income or qualify for your state’s Medicaid program, you are probably eligible for several mortgage programs. That’s also true if you work but earn a low income.
Program requirements depend on who will own and occupy the property, and how the occupants will pay their mortgage. They also depend on whether the program is federal, state, or local.
Here are several of the best-known home loan programs for disabled persons.
Fannie Mae home loans for disabled individuals
Fannie Mae is one of two major agencies (along with Freddie Mac) that back most U.S. home loans. Mortgages backed by Fannie and Freddie are called conforming loans.
Fannie Mae HomeReady loans
There’s a wide variety of conforming loan products available, but the best Fannie Mae program for disabled home buyers is typically the HomeReady mortgage, thanks to its flexible guidelines.
To qualify, home buyers need:
- 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)
Long-term disability and Social Security benefits are both acceptable income sources for the HomeReady loan program.
In addition, you need only a 3% down payment — that’s $9,000 for a $300,000 home — and the 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.
By contrast, many other mortgage programs require the buyer to pay at least some of the purchase price out of pocket. This can be difficult for someone living on disability income with limited savings.
Buying with non-occupant co-borrowers under HomeReady
Along with its low down payment, HomeReady has another 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 high income could be included on their disabled family member’s mortgage. Just keep in mind that the total income being counted toward your mortgage qualification must remain below HomeReady income limits.
Note: Fannie Mae backs these mortgages but does not offer them directly. You don’t “go” to Fannie Mae to get a HomeReady loan; rather, you apply with a standard bank or mortgage lender that offers this program. This gives home buyers the freedom to shop among lenders for the best mortgage rate on their loan.
VA home loans for disabled veterans
The VA loan program, backed by the U.S. Department of Veterans Affairs, is one of the best home loan programs available. VA loans do not require a down payment and they offer some of the lowest mortgage rates you’ll find. This makes VA loans attractive for any veteran or service member.
But there are additional VA loan benefits for veterans with service-related medical problems or disabilities:
- VA disability income can be counted 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.
VA loan income requirements can be met by income from disability benefits. 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.
USDA home loans for disabled persons
The USDA loan program — backed by the U.S. Department of Agriculture — is another zero-down mortgage that allows qualified borrowers to buy a home with disability income.
The USDA runs two loan programs: USDA Guaranteed and USDA Direct.
USDA Guaranteed Loans
USDA Guaranteed loan requirements typically include:
- 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”
While the USDA backs these loans, they don’t come directly from the federal government. They come from private lenders that are authorized by the USDA. Many mainstream mortgage lenders can offer USDA Guaranteed loans.
USDA Direct Loans
Disabled home buyers with income below the median income for their area may be eligible for a USDA Single Family Housing Direct Loan.
The Direct Loan is a subsidized mortgage program, meaning USDA will help cover a portion of the homeowner’s mortgage payments for a set period of time. Eligibility for this housing program — and the amount of payment assistance — depends on the applicant’s household income.
Another big benefit of the USDA DIrect mortgage program is that fixed interest rates (when modified by payment assistance) can be as low as 1 percent.
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”
Borrowers who qualify for the Housing Direct Loan can use the mortgage to buy a new or resale home. In addition, they can build, repair, or renovate a house.
The payback period is 33 to 38 years. This extended repayment, combined with the low rate, helps 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 USDA’s subsidized program can still access a USDA Rural Housing loan. It has looser guidelines, but still allows zero down payment and offers below-market mortgage rates.
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.” This provides housing assistance to disabled buyers who meet its eligibility requirements.
The homeownership voucher program allows individuals who qualify for rental assistance through Section 8 to instead use their voucher to buy a home. In this case, HUD would help cover mortgage payments and other homeownership costs in place of rent.
Qualifying 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 Agency about meeting with a housing counselor to start the process.
Be aware that not all PHAs participate in the HCV homeownership program. And waitlists to receive a Section 8 voucher can be long.
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 your housing.
Are there home loans for disabled persons with bad credit?
Mortgage loans for people with disabilities tend to focus on income and down payment flexibility, since lack of income and savings can be a big barrier to homeownership. But what if you have a low credit score as well?
One option is the FHA mortgage program, which is geared toward home buyers with a lower credit score or imperfect credit history. FHA loans are insured by the Federal Housing Administration, which means they can have more lenient eligibility guidelines.
FHA will accept a credit score of 580 with just a 3.5% down payment. You might even get approved with a credit score of 500 to 579 — but only if you can put 10% down. (And it’s hard to find lenders willing to accept scores this low.)
Do FHA loans accept disability income?
Like the other loan programs described above, FHA loans allow both SSI and SSDI income on your mortgage application. According to FHA guidelines, disability income can be verified with any one of these documents:
- 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’re allowed to 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.
Parents buying a home for a disabled child
Parents and caretakers of people who have 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 they would if they bought the property as a second home.
Fannie Mae loans for buying a house for your child
One option for parents buying a home for their disabled child is to choose a conforming loan backed by Fannie Mae. 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 considered to be owner-occupied, it can be financed 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 receives Social Security disability benefits on behalf of their child or dependent, this income can typically be used to qualify for the 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.
Housing grants for people with disabilities
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. Luckily, there are a number of assistance programs to help reduce or eliminate these out-of-pocket costs. And disabled persons have access to more of these programs than other home 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:
- Down payment grants: Assistance that never has to be repaid
- Down payment loans: Assistance that must be repaid; however, 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 offer 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 offers home loan programs to help disabled veterans with the cost of buying a home, as well as home modification grants to adapt an existing residence to be more accessible.
To qualify for these programs, the veteran must have a service-connected disability, and they must currently live in or be purchasing the home in question.
- Specially Adapted Housing (SAH) Grants: The VA’s largest grant, which can be 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, which can also be 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
You can find more information about these programs and apply for a grant on the VA website.
USDA Single-Family Housing Repair Grant
The U.S. Department of Agriculture offers a Housing Repair Grant meant to help low-income families “repair, improve or modernize homes or remove health and safety hazards.”
For eligible homeowners, USDA Housing Repair Grant can offer a grant of up to $10,000 or a loan of up to $40,000 to pay for home repairs and upgrades. Loans (the more common option) are repayable over 20 years and have a fixed interest rate of just 1 percent. Grants and loans can also be combined for total assistance of up to $50,000.
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
Help from nonprofit organizations
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. This is done through employment initiatives, technical housing assistance, financial education, and additional resources.
The NDI partners with financial institutions, local and state government programs, and other organizations to connect persons with disabilities with housing opportunities. You can learn more about the NDI on its website.
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.” This program is not restricted to non-disabled home buyers.
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 which 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. You can learn more and find your local Rebuilding Together Affiliate here.
Homes for Our Troops
Homes for Our Troops offers mortgage-free homes for veterans wounded in overseas combat after September 11, 2001. The program focuses on “specially adapted custom homes” for injured veterans, 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. You can request assistance and find more veteran housing resources on the Homes for Our Troops website.
Mortgage with a disability: Additional resources
There are many state and local resources for home buying help. Among those are:
- The National Council of State Housing Agencies
- HUD’s Local Homebuying Programs
Also, if you need it, you can find down payment assistance specifically for disabled home buyers.
Before you apply for any kind of mortgage, try to pay down your credit cards and avoid taking out new loans. This should help you meet program and lender credit score rules.
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.