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- It is possible to buy a home when all or most of your income comes from disability benefits or insurance.
- You need to provide documents that match your income and ensure that you meet the loan standards.
- Lenders cannot ask you about the nature of your disability or ask for a letter from your doctor.
If you are using a home equity loan, you will need to meet your lender’s requirements to qualify. Basically, it depends on a few things: credit, income, debt and payments.
When looking at how much money you will use to make your monthly loan payments, lenders will consider income from a variety of sources, including child support payments, income on public assistance, and yes, disability benefits.
Can you buy a home with your disability income?
As long as the landlord does not increase the loan to your income, it is possible to buy a house when the majority of your income comes from disability benefits or insurance.
In the eyes of the lender, disability income is considered like any other income, with one case that may help you (more than a minute).
Lenders want to make sure you can do two things: try to make your monthly payments now and continue to make your payments in the future.
If your income is sufficient and you will continue to receive it for at least three years, you should be able to use it to secure a loan and buy a house – provided you meet the lender’s requirements.
Types of Disability Income
Disability income can come from a variety of sources, including:
- Social Security Insurance (SSDI): SSDI, which is administered by the Social Security Administration (SSA), provides benefits to those with a qualifying work history, meaning they have paid enough into the program while working to qualify for benefits. .
- Supplemental Security Income (SSI): SSI is also administered by the SSA and pays benefits to qualified individuals based on financial need.
- Employer-provided or private disability insurance: Many employers offer disability insurance that replaces a portion of your income if you become disabled. Individuals can also purchase their own policies from private insurance providers.
- VA Disability Benefits: Veterans who have a service-connected disability may be eligible for monthly compensation from the Department of Veterans Affairs.
How to secure a disability income
When you use disability income to secure a loan, you will go through the same process as other borrowers. Lenders will look at your credit, debt, assets and all sources of income you provide.
To show proof of disability income, you need to provide some verification that you are currently receiving benefits and that they will not expire within the next three years. The documents you provide need to specify how much you receive, and how often you receive benefits.
Acceptable disability income documentation may include:
In addition to providing information about your disability income (and any other resources you have), you will need to meet your lender’s requirements. This means you may need:
- A minimum score of 580 or 620, depending on the type of loan you receive. FHA loans offer a credit score of 580 or lower, depending on your down payment. For a standard mortgage, you need a score of at least 620.
- The maximum debt-to-income ratio is 50%. Again, depending on the type of loan you get and the rest of your money, the max rate can be a little lower or higher.
- Minimum 3% down payment, unless you qualify for a loan with 100% financing. Conventional loans require a minimum of 3%, while FHA loans require a minimum of 3.5%. VA and USDA loans allow 0% down.
Increases non-taxable income
If your income is not taxable, your lender may “maximize it,” which means increasing your income by a percentage of the total amount withheld.
“As long as this income is considered tax-free, you can increase your monthly income by 125%,” says Brian Quigley, founder of Beacon Lending.
For example, if you earn $2,000 in tax-free SSDI per month, the lender can view that income as equal to $2,500 per month, because you don’t pay taxes on it.
“This is very important, especially if your debt-to-income ratio is skewed toward the unapproved loan side,” Quigley said. “That extra 25% is essential!”
The challenge of buying a home using disability benefits
If you receive short-term disability benefits, it may be more difficult for you to use that income to secure a loan.
“If the disability benefits don’t continue for three years or more, it will be a challenge for most lenders to make that income count when buying a home,” Quigley said.
If you are currently receiving disability benefits that will be reduced at some point in the future, it may also be difficult to qualify for a loan, as lenders may will consider the reduced amount only.
SSI recipients may also have a difficult time saving up for a down payment, as this benefit is limited by financial need. If you save too much, you may become ineligible for this benefit. Currently, an individual cannot have more than $2,000 in assets while receiving SSI. A married couple cannot have more than $3,000.
If you can’t raise enough money for a down payment, look into low or no loan options. Many state and local governments, nonprofit organizations, and lenders offer down payment assistance in the form of grants or forgivable loans.
If you have a low income, there are programs available to make home ownership more affordable. Find programs in your state or loans and grants specifically for people with disabilities. Many lenders also offer collateral for first-time or low-income borrowers.
Be aware of loan disparities
Lenders cannot refuse to consider disability income, and they cannot treat you differently because of your disability or income.
This means that they cannot hold you to stricter document requirements than other applicants. For example, lenders may not ask you about the status of your disability or ask for a doctor’s note that your disability may continue.
If your disability certificate does not have an expiration date showing that your benefits will end within the next three years, the lender must consider continued benefits.