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- It's possible to buy a home when all or most of your income comes from disability benefits or insurance.
- You'll need to provide proper documentation of your income and ensure that you meet the lender's credit standards.
- Lenders can't ask you about the nature of your disability or request a letter from your physician.
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If you're using a mortgage to purchase a home, you'll need to to meet your lender's requirements to qualify. Typically, this comes down to just a few things: credit, income, debts, and down payment.
When looking at the money you'll be using to make your mortgage payments each month, lenders will consider income that comes from a variety of different sources, including child support payments, public assistance income, and yes, disability benefits.
Can you buy a house using disability income?
As long as homeownership doesn't push your debt-to-income ratiotoo high, it's possible to buy a home when all or the majority of your income comes from disability benefits or insurance.
In the eyes of a mortgage lender, disability income is basically viewed like any other income, with one exception that can work in your favor (more on that in a minute).
The lender wants to make sure that you can do two things: afford your monthly payments now and continue affording your monthly payments for the foreseeable future.
If your income is sufficient and you'll continue receiving it for at least three years, you should be able to use it to qualify for a mortgage and purchase a home — as long as you meet the lender's other requirements, as well.
Types of disability income
Disability income can come from a few different sources, including:
- Social Security Disability Insurance (SSDI): SSDI, which is administered by the Social Security Administration (SSA), pays benefits to those who have a qualifying work history, meaning they've paid enough into the program when they were working to receive benefits.
- Supplemental Security Income (SSI):SSI is also administered by the SSA and pays benefits to eligible individuals based on financial need.
- Employer-provided or private disability insurance: Many employers offer disability insurance that replaces a certain portion of your income if you develop a disability. Individuals can also purchase their own policies from private insurance providers.
- VA disability compensation:Veterans who have a service-related disability may be eligible for monthly compensation from the Department of Veterans Affairs.
How to qualify for a mortgage with disability income
When using disability income to qualify for a mortgage, you'll go through the same process as any other borrower. The lender will look at your credit, debts, assets, and all sources of income you provide.
To show proof of disability income, you'll need to provide some verification that you're currently receiving benefits and that they aren't set to expire within the next three years. The documentation you provide will also need to specify how much you receive, and how often your benefits are paid.
Acceptable documentation of disability income can include:
- Social Security Administration award letter
- SSA-1099 form
- Copy of your disability insurance policy
- VA disability award letter
- Other documentation showing that you currently receive benefits
In addition to providing information about your disability income (and any other sources of income you have), you'll need to meet your lender's down payment and credit requirements. This means you'll likely need:
- A minimum credit score of 580 or 620, depending on the type of loan you get.FHA mortgages allow scores of 580 or lower, depending on your down payment amount. For a conventional mortgage, you'll need a score of at least 620.
- A maximum debt-to-income ratio of 50%. Again, depending on the type of loan you get and the rest of your finances, your max ratio may be a little lower or higher.
- A down payment of at least 3%, unless you qualify for a loan with 100% financing. Conventional loans require a minimum of 3% down, while FHA loans require at least 3.5%. VA and USDA loans allow 0% down.
Grossing up non-taxable income
If the income you receive isn't taxed, your lender may "gross it up," meaning it inflates your income by a certain percentage to account for the the fact that you get to keep the full amount.
"As long as this income is deemed non-taxable, you can gross up the monthly income by 125%," says Brian Quigley, founder of Beacon Lending.
For example, if you receive $2,000 of non-taxable SSDI income each month, the lender is able to look at that income as equal to $2,500 per month, since you don't pay taxes on it.
"This is very important, especially if your debt-to-income ratio is teetering on the side of loan not being approved," Quigley says. "That extra 25% is essential!"
The challenges of buying a house using disability benefits
If you're only receiving short-term disability benefits, you'll likely have a harder time using that income to qualify for a mortgage.
"If the disability benefit does not continue for at least three years or more, this will be a challenge with most lenders in granting that income as qualifying when purchasing a home," Quigley says.
If you're currently receiving disability benefits that will be reduced at some point in the future, that can also make qualifying for a mortgage challenging, since the lender will likely only consider the reduced amount.
SSI recipients may also have a tricky time saving enough for a down payment, since this benefit is limited by financial need. If you save too much, you could become ineligible for this benefit. Currently, individuals can't have more than $2,000 in assets if they receive SSI. Couples can't have more than $3,000.
If you aren't able to save much for a down payment, check out your low or no down payment mortgage options. Many state and local governments, nonprofits, and lenders also offer down payment assistance in the form of grants or forgivable loans.
If you have a lower income, there are programs available to help make homeownership more affordable. Look for programs in your state or loans and grants specifically geared toward individuals with disabilities. Many lenders also offer affordable mortgages for first-time or low-income borrowers.
Beware of mortgage discrimination
Lenders can't refuse to consider disability benefits income, and they can't treat you differently because of your disability or your disability income.
This means they can't hold you to stricter documentation requirements than they do other applicants. For example, a lender isn't allowed to ask you about the nature of your disability or request documentation from your doctor asserting that your disability is likely to continue.
As long as your disability award letter doesn't have an expiration date showing that your benefits will end within the next three years, the lender must treat the benefits as likely to continue.
Mortgage Reporter
Molly Grace is a reporter at Insider. She covers mortgage rates, refinance rates, lender reviews, and homebuying articles for Personal Finance Insider. Before joining the Insider team, Molly was a blog writer for Rocket Companies, where she wrote educational articles about mortgages, homebuying, and homeownership. You can reach Molly at mgrace@insider.com, or on Twitter @mollythegrace.
