Can I Buy a House While I'm on Social Security Disability Benefits?

If you receive Social Security disability benefits and you're considering buying a house, you might have questions about whether it could affect your eligibility for the benefits you depend on. The answer might depend on the type of benefits you receive. Two separate Social Security programs provide individuals with disability benefits: Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI).

Does Social Security Prohibit Disability Recipients From Buying a House?

Social Security doesn't prohibit individuals who receive disability benefits—under either the SSDI or SSI program—from purchasing a home or using their monthly disability payments to fund the purchase of a house. But SSI recipients could run into trouble if they try to save up money for a down payment.

While there is no limit on assets for the SSDI program, recipients of SSI benefits are subject to certain resource limits. The SSI program has an asset limit of $2,000 for a single person and $3,000 for married couples. Many categories of assets are excluded from the calculation of total assets, however, including your principal residence (as well as the land a home sits on and any accessory buildings). But if an SSI recipient saves more than $2,000 (or $3,000 for a couple), the Social Security Administration (SSA) could suspend their benefits.

Monthly SSI payments are so low that not many SSI recipients can put aside money for a down payment anyway. And SSI benefits alone typically aren't enough to pay mortgage payments. But the SSI program does allow recipients to earn a small amount of income while remaining eligible for benefits, so it might not be impossible to buy a house with others, possibly with help from family.

Fortunately, there are several programs that can help people who are receiving disability benefits buy a house, which we'll explore below.

Will a Bank Grant a Mortgage to Someone on SSDI/SSI?

Mortgage lenders want to see that a mortgage applicant will have enough income to pay the monthly principal and interest due on the home loan. Banks will consider Social Security disability income as part of your gross monthly income, just as they will count Social Security retirement benefits as income. The mortgage lender will ask you to get a benefits letter from the SSA to document your income.

For someone receiving a large amount of SSDI, qualifying for a mortgage is less likely to be a problem. (Average SSDI payments are about $1,600 per month, but they can go up to about $4,000 per month.) SSI applicants are more apt to have difficulty qualifying for a mortgage, since the average SSI payment is about $700 a month.

While banks and other mortgage lenders might determine that someone who is dependent on SSDI or SSI benefits can't financially afford a proposed mortgage, lenders are prohibited by law from denying a mortgage just because an applicant is disabled. A lender should not ask you about the nature of your disability or for documentation from your doctor.

The federal Fair Housing Act makes it illegal for lenders to engage in certain discriminatory practices against people with disabilities. Prohibited practices include:

• refusing to provide information regarding mortgage loans
• refusing to offer or refinance a mortgage, or
• imposing different terms or conditions of a mortgage loan, such as interest rates or fees, for those who rely on disability income.

What Are Some Programs That Help People on Disability Buy a House?

Various federal, state, local, and private organizations provide financial assistance or other logistical support to people who receive disability benefits or who have low income and want to buy a house. Here are some of the national programs that offer help.

• HomeReady mortgages from Fannie Mae. Fannie Mae's HomeReady mortgage program can be an attractive option for those receiving disability benefits, due to the program's flexible requirements. Fannie May considers disability benefits an acceptable source of income and allows a non-resident co-signer to guarantee the loan. In addition, the program has a low minimum down payment of 3% that can come from sources other than the applicant's own savings (more on this below). (Note that Fannie Mae does not issue mortgages itself but instead underwrites mortgages issued by traditional banks and lenders.)
• Department of Veterans Affairs (VA) loans. The VA offers home loans to eligible service members and veterans, including those who have sustained service-connected disabilities. The program waives the requirement for a down payment or a VA funding fee for service members or veterans with disabilities, offers attractive interest rates, and counts VA disability benefits (or Social Security benefits) as income.
• U.S. Department of Agriculture loans. The USDA offers loans to low-income individuals to purchase or construct homes in rural areas. USDA loans are subsidized, meaning the department helps cover a portion of the mortgage payments for part of the loan term. These programs offer generous repayment terms and allow applicants to include disability payments in their income.
• FHA-insured loans. The Federal Housing Administration (FHA) has programs that insure residential mortgage loans. This insurance covers lenders for any loss that is incurred in the event the homeowner defaults on their mortgage, enabling lenders to offer more favorable terms to homebuyers. (Find out about different types of mortgages here.)
• HUD Housing Choice Vouchers. Under what's commonly known as the Section 8 program, disabled individuals may be allowed to use their housing vouchers, which are typically used to subsidize rent payments, to help cover mortgage payments and other costs of maintaining a home.
• Habitat for Humanity. The international charitable organization Habitat for Humanity offers homes to individuals in need of safe, affordable housing, typically in exchange for partnering with the organization— in ways like helping to build their own homes or the homes of others, or volunteering in Habitat ReStores.
• Homes for Our Troops. Homes for Our Troops is a nonprofit that builds and adapts homes and then donates them mortgage-free to service members who were injured on duty after September 11, 2001. Recipients of homes must have the financial resources to maintain the home and pay property taxes, utilities, and insurance.

How Can I Save for a Down Payment on a Limited Income?

Many mortgage assistance programs for disabled individuals allow applicants to use money from sources other than their own savings for down payments. (Traditional mortgage programs don't, for instance, allow you to borrow from family or friends for the down payment.)

If you're receiving limited income from disability benefits, here are some options that might provide you with sufficient funds to make a down payment on a house:

• receiving money from family members, who can provide up to $19,000 per year tax-free as gifts
• borrowing money from family members or friends, although mortgage lenders may factor these loans into your overall financial situation
• withdrawing saved funds from a 401(k) or IRA (although you may have to pay taxes on withdrawals if they don't qualify for a first-time home buyer exception)
• using the equity in your existing property, if you need to move to a different home that can better accommodate your disabilities, or
• buying a home together with a family member or friend who will live on the property with you.

Can I Buy a House If I Have Less Than Stellar Credit?

People who apply for disability benefits because they can't work sometimes go into debt while waiting for their application to be approved. Having late payments or substantial debt can have a negative impact on their credit scores.

Fortunately, most of the loan and mortgage assistance programs listed above have very generous standards for applicant eligibility, including accepting individuals with poor credit. For example, the FHA will insure loans for individuals with credit scores as low as 580, while Fannie Mae-backed mortgages may be offered to applicants with credit scores as low as 620.