Can a person on disability buy a house? Yes, if that aspiring homeowner’s income, debt, and credit qualify them for the house they want to buy. Lenders look at those factors for all applicants.
Income can come from Social Security Disability Insurance (SSDI), Supplemental Security Income (SSI), long-term disability from an employer or insurer, or veterans disability compensation.
Let’s take a look at housing rights, how to qualify to buy a house on disability, and home loans that make sense.
Legal Protections for People With Disabilities
The Fair Housing Act prohibits housing discrimination when people are buying or renting a home, applying for a mortgage, or finding housing assistance. That shields people with disabilities, among many others.
Mortgage lenders are not to:
• Approve or deny loans based on an applicant’s disability
• Refuse to provide a mortgage or information about a mortgage to a person with a disability
• Create different terms, rates, or fees for a disabled person
• Appraise a property differently for a disabled person
• Modify homeowners insurance for a person with a disability
• Discriminate in a home loan modification
Section 504 of the Rehabilitation Act of 1973 and the Americans with Disabilities Act (ADA) also stipulate that people with disabilities should not be excluded from federal housing programs offering financial assistance and do require accommodation in the construction and modification of public and commercial spaces.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
How to Buy a Home on Disability
If you receive disability pay and want to buy a house, you might start by seeking prequalification and preapproval for a mortgage.
Prequalifying is quick and provides a ballpark figure of how much of a mortgage you can afford.
This mortgage calculator can also give you an idea.
Preapproval begins with a mortgage loan application, which can be made for many different types of mortgage loans. A lender will look at your credit scores, income, debt, and assets.
If you’re preapproved for a mortgage, the lender will issue a letter with a maximum amount you can likely borrow. Buying a home under this amount gives your loan a good chance of closing because it’s based on hard credit inquiries and documentation you provided.
You may have a chance to buy a house from a family member. If so, a gift of equity is a wonderful one: The relative sells the home to you for less than full market value.
Credit Scores
Your credit scores and history are a big part of qualifying for a mortgage. Your median credit score of three represents your risk to the lender. A higher credit score means you pay your bills on time and are less likely to default.
Lenders often offer the most favorable interest rates to borrowers with credit scores above 740, but a government home loan like an FHA loan is available to people with credit scores as low as 500.
If you have past medical bills or an imperfect credit history as a result of your disability, you can focus on factors that affect your credit score and make improvements as needed. Making on-time payments and paying down debt can go a long way toward helping your credit.
Income Requirements
Income and debts help determine home affordability.
Your disability income counts as long as there is no expiration date on your benefits in the next three years (or you have a guaranteed job waiting with the same pay once you’ve recovered, as can be the case with a maternity leave).
General guidelines suggest looking for a home with a monthly payment that is around 28% of your gross monthly income, or three to five times your yearly income.
See also: How Much House Can I Afford Based on My Income?
Debt Requirements
Your debt also plays a large factor when your lender determines how much you’re able to borrow.
Lenders will look at your debt-to-income ratio, which is your debt payments each month relative to your monthly income. This number is recommended by lenders to be 43% or less, though the exact ratio will depend on the mortgage loan you’re applying for.
Generally, the lower the number, the better your chances of being approved for the mortgage you want.
To find your DTI ratio, add up your monthly bills (not including groceries, utilities, cellphone bill, car insurance, or health insurance) and divide that sum by your monthly gross income. Then turn it into a percentage.
Sometimes qualifying for a mortgage with your own income isn’t enough. There are assistance programs worth looking into.
Financial Assistance in Your State
One of the first places you can look for homeownership assistance is your individual state. Once you click on your state, you’ll see a link for “homeownership assistance” or “homebuying programs.” From there, you’ll be directed to programs in your area that offer down payment assistance and other help.
Are you a first-time homebuyer, meaning you haven’t owned a principal residence in the past three years? If so, you may qualify for more housing perks than others.
Another reference is the National Council of State Housing Agencies, which has a state-by-state list of housing finance agencies, which cater to low- and middle-income households.
Recommended: Short-Term vs Long-Term Disability Insurance
Home Loan Programs for People With Disabilities
There may be a specialized program to fit your needs. Take a look at some of these options.
Section 8 Housing Choice Voucher Homeownership Program
Most know the Section 8 housing program as providing rental assistance for the elderly, very low-income families, and people with disabilities. But did you know that low-income families may be able to use the vouchers to buy a home and assist with mortgage payments?
The conditions are up to the public housing agencies in your area. Contact information for each state can be found on HUD’s website.
General qualifications may include:
• Be eligible for the Housing Choice Voucher program
• Be a first-time homebuyer
• Family cannot pay more than 40% of monthly income for housing expenses and utilities
• Must meet minimum income standard
• Full-time employment
• Applicant cannot have defaulted on a previous mortgage
• Complete homeownership counseling sessions
VA Loans
Whether you receive Veterans Affairs disability compensation or not, if you’re a veteran, VA home loans make a lot of sense. There’s no down payment and no minimum credit score requirement (although many lenders require a FICO® score of at least 580 to 620). Most borrowers pay a one-time funding fee.
Disabled Veteran Housing Assistance
Veterans who have service-related or aging-related disabilities may be able to qualify for grants through the VA. Three types of grants can be used to modify a home for your needs.
• Specially Adapted Housing or a Special Housing Adaptation grant. This grant allows disabled veterans to buy, build, or modify a home to help them live independently.
• Temporary Residence Adaptation grant. If you’re living with a family member or in another temporary living situation, you may be able to qualify for grant money to modify the home to meet your needs.
• Home Improvements and Structural Alterations grant. This grant allows you to make structural or medically necessary improvements to your home. Veterans may not need to have a service-connected disability to qualify.
FHA Loans
Credit scores of at least 500 are required for an FHA loan. If your credit score is between 500 and 579, you’ll need a 10% down payment. A score above 580 earns the privilege of putting as little as 3.5% down.
Conventional Loans
If you have good credit and a decent down payment, a conventional loan may be a more inexpensive option than an FHA loan.
A Fannie Mae “family opportunity mortgage” can also make sense for a parent who wants to buy a home for an adult disabled child and retain owner-occupant status, even if the parent won’t be living in the home.
A Fannie Mae HomeReady® Mortgage is ideal for low-income borrowers who may need down payment assistance. It allows for a down payment as low as 3% to come from various sources, such as grants, gifts, and “Community Seconds” second mortgages. Borrowers must have a FICO score of at least 620, but a credit score above 680 gets the best pricing.
USDA Loans
The U.S. Department of Agriculture (USDA) has nothing-down options to buy a home through its Rural Development office. Low- and moderate-income buyers in rural areas may apply for a USDA loan through approved lenders. Low- and very-low-income buyers may apply directly to the USDA for a subsidy to lower mortgage payments for a period of time.
Note: SoFi does not offer USDA loans at this time. However, SoFi does offer FHA, VA, and conventional loan options.
The Takeaway
A person who receives disability benefits may be able to buy a house if they qualify based on income, debts, and credit score. There are also programs to help buyers qualify for a mortgage.
If you need a reliable partner in your home-buying journey, give SoFi a look. SoFi offers low-fixed-rate mortgages, and qualifying first-time buyers may put just 3% down.
Take a look at home mortgage loans with SoFi today.
FAQ
Can you get preapproved for a mortgage while on disability?
Yes, it is possible to get preapproved for a mortgage while on disability. You’ll submit an application to one or more lenders, which will look at your income, debt, assets, and credit history.
Is it possible to buy a house on disability?
Yes. You will need to show that your disability income will continue for at least three years or that you have a comparable job waiting once you’ve recovered.
Can I buy a house on SSI?
Yes, you can use Supplemental Security Income to qualify for a home as long as there’s no documented expiration date in the next three years. SSI payments alone usually aren’t enough to pay mortgage payments, but it might be possible to buy a house with help from family members.
Photo credit: iStock/baona
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