Best programs for getting a mortgage with a disability in 2021

Dahna Chandler
The Mortgage Reports contributor

Getting a mortgage with a disability may be easier than you think

Some people mistakenly believe they can’t own a home or get a mortgage because of a disability.

That’s an understandable misconception. Fortunately, it’s wrong.

Qualifying for these mortgages can be easier than for traditional home loans, and they offer some of the lowest interest rates available.

That empowers disabled persons to achieve homeownership or get into a better home loan than they are in now.

Even if you’ve been turned down before, now could be the time to apply for one of today’s programs.

Check your mortgage eligibility (Mar 4th, 2021)

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Can I buy a home on disability income?

Income can be a major challenge for disabled persons hoping to buy a home. With low or no income from standard employment, it can be difficult to meet a mortgage lender’s qualification criteria.

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)
  • 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. 

Check your mortgage eligibility (Mar 4th, 2021)

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.

If you receive long-term disability income or insurance, your lender will need to see a disability policy or benefits statement from the benefits payer (typically the insurance company or 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 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 (e.g. 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 3 years — for example, by verifying the recipient’s age.

Mortgage programs for disabled home buyers

Special mortgages exist for people with disabilities, and for parents buying a home for a disabled child.

In addition, there are mortgage programs for able-bodied people who live with qualified disabled residents. For instance, a caretaker who shares a home with their disabled sibling might get a special mortgage.

If you receive government disability income, 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 programs.

Fannie Mae loans for disabled individuals

Fannie Mae is one of two major agencies that back most U.S. home loans (along with Freddie Mac). Mortgages backed by Fannie and Freddie are called ‘conforming loans.’

There is 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 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 under the HomeReady program.

In addition, you only need a 3% down payment — and it doesn’t have to come out of your own savings.

The HomeReady program allows you to 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.

Another benefit of Fannie Mae’s HomeReady loan is that it allows ‘non-occupant co-borrowers.’

A non-occupant co-borrower is someone who does not live with you, but is included on your mortgage application.

You can use their credit or income to help you qualify for a loan if you don’t meet the requirements 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.

Finally, this program allows you to count additional household income on your application. Home buyers with low income could increase their borrowing power by adding income from renters or roommates. 

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.

Check your eligibility for Fannie Mae loans (Mar 4th, 2021)

VA home loans for disabled veterans

The VA loan program, backed by the Department of Veterans Affairs, is one of the best home loans available. It does not require a down payment and offers ultra-low mortgage rates. This makes it an attractive option 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’ve 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 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.

Check your eligibility for a VA loan (Mar 4th, 2021)

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.

USDA loan requirements typically include:  

  • Income is no higher than 15% above your area’s median income
  • Credit score of at least 640
  • The home you’re buying must be in a USDA-approved “rural” area

Disabled home buyers with income below the low-income limit for their area may be eligible for a USDA Single Family Housing Direct Loan.

The Single-Family Housing 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. Program eligibility and the amount of payment assistance depends on the applicant’s household income.

Another big benefit of this program is that fixed interest rates can be as low as 1%.

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 noncitizen 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
  • Price can’t exceed area loan limit for 100 percent loans
  • No in-ground swimming pool
  • Must be a primary residence, and cannot generate income

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.

Note that regular lenders do not offer the Direct Loan. You’ll have to apply with your local Rural Development Office.

Application processing times could be longer and the process could be less convenient. Buyers who can qualify for the standard program should try that first.

Buyers with moderate incomes, who don’t qualify for USDA’s subsidized program, can also apply for the standard USDA Rural Housing loan. It has looser guidelines, but still allows zero down payment and offers below-market mortgage rates.

Check your USDA loan eligibility (Mar 4th, 2021)

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 assistance to low-income renters.

But there’s also a lesser-known Section 8 program for home buyers, called the Housing Choice Voucher (HCV) homeownership program.

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.

To qualify for this program, you’ll need a current Section 8 voucher.

If you do not have one, you can apply with your local Public Housing Agency. But be aware, not all PHAs participate in the HCV homeownership program. And, waitlists to receive a Section 8 voucher can be long.

Other requirements for the program include:

  • Household income not below the monthly Federal Supplemental Security Income (SSI) benefit for an individual living alone
  • You’re 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 repairs
  • Costs to make the home accessible, if needed

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 disabled individuals 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 3.5% down payment.

You might even get approved with a credit score of 500-579 — but only if you can put 10% down. (And it’s hard to find lenders willing to accept scores this low).

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 the SSA
  • 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.

Parents buying a home for a disabled child

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,’ 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.

One option for parents buying a home for their disabled child is to choose a conforming loan backed by Fannie Mae.

Thanks to a loophole in Fannie Mae’s rules, 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% 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 3 years.

Check your home loan options (Mar 4th, 2021)

Grants to help disabled home buyers

Unless you qualify for a zero-down USDA or VA loan, you’ll likely need to come up with cash to pay the down payment and closing costs on your new home.

Luckily, there are a number of 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 (DPA), 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 income.

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 keep the home a set number of years

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 DPA.

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 Veterans Affairs has a variety of grant programs to help disabled veterans with the cost of buying a home and/or adapting it 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 Home Adaption 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, this program can offer a grant up to $7,500 or a loan up to $20,000 to pay for repairs and upgrades to make a home more accessible.

Loans (the more common option) are repayable over 20 years and have a fixed interest rate of just 1%.

To qualify, the borrower must:

  • Be the homeowner and occupy the house
  • Be unable to obtain affordable credit elsewhere
  • Have a family income below 50 percent of the area median income
  • For grants, be age 62 or older and not be able to repay a repair loan

You can learn more about USDA’s Housing Repair Grant program here.

Help from nonprofit organizations

Three national programs help low-income families and disabled people become homeowners. 

Habitat for Humanity

Habitat for Humanity builds accessible homes. It can also provide affordable mortgages to those approved for their program.

You apply through your local Habitat for Humanity affiliate, and you must be willing to help with the building of your home. This is known as “sweat equity.”

Note, “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 the physically able.

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:

Also, if you need it, you can find down payment assistance specifically for disabled home buyers.

Explore all your home buying options

Current mortgage rates for all programs, including those for disabled borrowers, are very low. However, you should still 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.

Assistance programs coupled with low interest rates can make buying your own home more affordable than many people expect.

Verify your new rate (Mar 4th, 2021)

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