If You Are Receiving Disability Benefits, Can You Buy a Home?
If you receive Social Security Disability benefits, you might wonder if this disqualifies you from getting a mortgage to buy a home.
It doesn’t. You can buy a home.
It’s a common misconception that you need a job with a regular salary to qualify for a mortgage, but you don’t.
You can buy a home while receiving Social Security Disability benefits because disability benefits are generally considered to be reliable income.
Mortgage lenders don’t necessarily require a paycheck from an employer. What they want to see is a stable income that will continue. And disability benefits often meet that definition.
Social Security Disability benefits are ongoing. You keep receiving them as long as you continue to have a qualifying impairment, subject to Social Security’s periodic reviews, until you reach retirement age.
Major housing loan programs fully accept disability income when determining if you qualify for a mortgage.
In this post, the Chicago disability lawyers at Nash Disability Law explain how disability benefits fit into home buying—and a special consideration about owning a home if the type of benefits you seek is Supplemental Security Income (SSI).
How Home Mortgage Lenders Look at Social Security Disability Income
When you apply for a mortgage, a lender wants to be confident that you can comfortably afford your monthly payments now and well into the future.
What they can’t do is discriminate against you because you collect disability benefits.
Under federal law, including the Equal Credit Opportunity Act, lenders must treat Social Security Disability benefits fairly when evaluating a mortgage application.
They cannot refuse to consider your benefits, impose less favorable loan terms because you receive them, or require unnecessary documentation simply because your income comes from Social Security.
They also cannot ask intrusive questions about the nature or severity of your medical condition.
To satisfy the requirement that your income is steady and expected to continue, you may need to provide one or all of the following items:
- Your disability benefits award letter
- Your latest benefits verification letter, which you can download from your account with Social Security
- Recent bank statements showing the regular deposits of your monthly benefits
Because some of your Social Security Disability monthly payments may be non-taxable, lenders can apply a “gross-up” when determining your purchasing power.
This means they increase your actual monthly benefit by as much as 25% when calculating your debt-to-income ratio. This accounts for you having more income at your disposal when you don’t pay income taxes on your benefits.
The gross-up advantage matters most when interest rates are high.
Borrowing money to buy a house costs more then, and many buyers find themselves locked out of a loan they would otherwise have qualified for if interest rates were lower.
Special Home Ownership Considerations for SSI Recipients
If you receive or are applying for Supplemental Security Income, one of the two disability programs run by Social Security, home buying requires a bit more careful planning.
Because SSI is a needs-based program for people who can’t work and have few other financial resources, saving up for a big purchase like a house could raise a red flag for Social Security.
One way to navigate this is to open an ABLE account, short for “Achieving a Better Life Experience” account.
You are allowed to open an ABLE account if your disability began before you turned 46. Social Security will disregard the first $100,000 in that account when looking at your financial resources for your SSI eligibility.
As long as the home you buy is your primary residence, Social Security won’t count it against your limit on resources and assets you can have under the SSI program.
SSI’s asset limits are very low and outdated, and have not been updated in decades. The rules say an individual cannot hold more than $2,000 in savings, investments or property and still get SSI. A couple can have up to $3,000.
But thankfully, your primary residence doesn’t count in that tally. SSI doesn’t penalize you for being a homeowner. It also allows you to own one car.
If you own any homes that aren’t your primary residence, however, that will probably be a problem for your SSI eligibility.
Home ownership isn’t a factor in qualifying for Social Security Disability Insurance (SSDI), the other Social Security Disability program.
SSDI is only concerned with your ability to work and any income you have from work. You can have any amount in savings, investments and real estate and still collect SSDI.
Common Questions About Home Loan Programs and Social Security Disability Beneficiaries
There are several loan programs you can apply for while collecting disability benefits.
Can I get an FHA loan while on Social Security Disability?
Yes. Federal Housing Administration (FHA) loans are popular with first-time home buyers because they allow for low down payments and flexible credit scores.
If you’ve been dealing with serious health issues, one factor to consider when seeking an FHA loan is whether you have medical debt and what form it takes.
But the FHA is generally lenient about medical debt when considering home loans.
Can I get a VA loan or housing grant while receiving Social Security Disability?
Yes again. For eligible military veterans with disabilities, VA loans guaranteed by the U.S. Department of Veterans Affairs offer excellent terms, including no down payment or mortgage insurance required.
Veterans with disabilities may also qualify for specialized housing grants to buy, build or modify a home.
Can I get Fannie Mae or Freddie Mac loans as a disability benefits recipient?
You can. These loans, designed for home affordability for people who meet income requirements, feature competitive rates and flexible down payment programs.
Recent changes in underwriting have also moved away from rigid, automatic credit score cutoffs, allowing lenders to evaluate your broader financial picture. Lenders are also beginning to use credit scoring models that look at trends rather than a set score limit.
All of this spells better opportunity for would-be homeowners as long as they prove they can meet their mortgage obligations.
Can I get a USDA home loan while receiving Social Security Disability benefits?
Like the other loan programs, USDA loans cannot discriminate against you on the basis that you’re getting Social Security Disability.
Backed by the U.S. Department of Agriculture, these loans require no down payment for low- to middle-income borrowers to buy a house in a rural or suburban area.
Can I get home loans that help with renovations to accommodate my disability?
If you find a home that fits your location and budget but needs modifications to accommodate your disability, many loan programs allow you to bundle the price of your home with the cost of accessibility upgrades in a single mortgage.
The mortgage market is daunting these days, and no less so for people on fixed incomes or managing severe health problems. Nonetheless, owning your own home while on Social Security Disability benefits is entirely possible.
The Social Security Disability attorneys at Nash Disability Law don’t help with home loans, home buying or any matters of personal finance.
But if you need to apply for disability benefits or appeal a denial, we can help.
There’s no attorney fee until you win benefits.
WE’VE HELPED MORE PEOPLE IN THE CHICAGO AREA WIN BENEFITS THAN ANY OTHER LAW FIRM.
