Can You Buy a House on Disability Income?

If disability income is your primary or only source of income, you may run into challenges that others may not encounter when trying to buy a home. Individuals with disability income may have concerns about qualifying for a mortgage, how disability income is verified, or how buying a house can affect SSI benefits. Today, we will look through some of the common scenarios that come up when trying to buy a house primarily with disability income.

How Does Disability Income Affect Getting a Mortgage?

There are many sources of income that might be considered “disability income”— SSI, SSDI, VA benefits, or private disability insurance. Most lenders typically consider disability income as a valid source for mortgage approval, which can be a huge help when trying to qualify for a mortgage using disability income. Make sure to check with your lender to see how they handle disability income, and shop around to find one that is a good fit for your specific situation.

Depending on your credit score or debt-to-income ratio (DTI), your disability income may be enough to qualify you for the mortgage you're looking for, or you may need additional income. Look for specific mortgage programs that might cater to individuals with disability income, including:

• FHA loans
• Fannie Mae’s HomeReady program
• USDA loans
• VA loans

More information here:

People Aren’t Buying Disability Insurance, But They Should

How Much Disability Insurance Should You Buy?

How to Buy a House on Disability Benefits

If you're looking to buy a house using disability benefits in part, the first thing to do is assess your finances. Review your income sources, including SSI, SSDI, and any other income and benefits that you have. That will help you calculate how much mortgage you can afford using your total income and DTI.

If necessary, work on building your credit. The way to build credit on SSI is similar to the way that you build credit even if you do not have disability benefits. This includes making sure to pay your bills on time, lowering your credit utilization, and paying down your debt. You may also want to explore any federal, state, or nonprofit programs that you may qualify for, and you might want to work with a mortgage lender familiar with SSI/SSDI rules.

Does Buying a House Affect SSI Benefits?

While SSI has a strict asset limit of $2,000 for an individual and $3,000 for a couple, your primary residence does NOT count against it. However, other financial assets, such as savings, could impact eligibility. This can make it challenging to save up for a down payment for a house or make sure you have enough liquid assets to take care of other housing-related expenses.

There are other strategies you can use to structure your assets (such as a special needs trust), but it can get complicated. Consult a qualified financial advisor or your county's board of developmental disabilities if you have questions. Proceed with caution, since once you lose your SSI or SSDI benefits, it can be challenging to get them back.

Does Disability Count as Income?

The way that various lenders view disability payments can depend, but the good news if you are receiving disability payments is that most lenders count SSDI and VA disability benefits as stable income for mortgage approval. If you are receiving SSI, it can be more complicated since SSI has limitations on asset accumulation.

It's also important to understand that SSDI and VA benefits are generally not taxable, but private disability insurance may be. Understanding taxable vs. non-taxable income when applying for a mortgage is crucial since it can have a big impact on how much of a mortgage you might qualify for.

More information here:

Social Security Disability Insurance 5-Year Rule: What Is It?

What Are the Different Types of Disability Insurance?

How Do I Build Credit on SSI?

Lenders generally require strong credit to approve you for a mortgage, so it's important to maintain a good credit score. The good news about building credit on SSI is that it's pretty much the same as building credit even if you're not on SSI. A few ways that you might build credit:

• Paying your bills on time each and every month
• Lowering your credit utilization
• Paying down debt
• Using a rent-reporting service to add positive history to your credit report

The Bottom Line

Yes, you can buy a house on disability income, but careful planning is essential. Assess your finances, including any disability and other income you have, along with your credit score and any other assets you have. Additionally, research government assistance programs and make sure to work with a mortgage lender who specializes in disability income cases. While most lenders do count disability income as stable income for purposes of mortgage approval, that may not always be the case. Make sure to check with your lender to see how they will treat your situation, and don't be afraid to research multiple lenders to find the right one for you.

The White Coat Investor is filled with posts like this, whether it’s increasing your financial literacy, showing you the best strategies on your path to financial success, or discussing the topic of mental wellness. To discover just how much The White Coat Investor can help you in your financial journey, start here to read some of our most popular posts and to see everything else WCI has to offer. And make sure to sign up for our newsletters to keep up with our newest content.