The 5 best grants and home loans for disabled homebuyers

Disability should never keep any individual from owning a home or securing a mortgage. Fortunately, there are options out there to make this process more manageable. Disabled home buyers can enjoy a faster track to home ownership — or to a better mortgage — by securing loans, grants and other forms of funding from a range of government-backed agencies. Here’s a quick overview of the best home loans and grants for disabled home buyers.

Fannie Mae home loans for disabled borrowers

Most U.S. home loans are backed by one of two agencies: either Fannie Mae or Freddie Mac. These mortgages are called conforming loans, and there are a wide range of options available. For those who are disabled, the Fannie Mae Program offers a Fannie Mae HomeReady loan. To qualify, potential buyers must have:

• A credit score of at least 620
• A down payment of at least 3% of the purchase price
• Low to moderate income (less than 80% of the median income in the area)

Both Social Security benefits and long-term disability are acceptable income sources for disabled people who apply for a HomeReady loan. You also don’t have to use your own savings to cover your down payment — the HomeReady program allows you to secure a down payment through grants, assistance funds, or even gifts from family or friends.

Most mortgage options require the buyer to cover all or part of the down payment out of pocket, so this option is ideal for disabled homebuyers who have limited savings and live on disability income.

VA home loans for disabled veterans

If you’re a disabled veteran, the country wants to thank you for your service and make it easier for you to own your own home. Backed by the U.S. Department of Veterans Affairs, the VA loan program is one of the best home loans and grants for disabled home buyers. Not only does this program not require a down payment, but it also offers some of the most attractive mortgage rates.

There are many other significant benefits that come with a VA loan. Veterans with service-related disabilities or medical problems enjoy:

• Exemption from paying the VA loan funding fee; spouses of veterans killed in the line of duty are also often exempt.
• No minimum service requirements. No matter how long you served, if your disability is connected to your service, you’re eligible for a VA home loan.
• Some VA home loan recipients may also be eligible for property tax exemptions or mortgage tax credits to reduce your annual tax burden. Connect with your state’s tax authority to learn more.

Aside from the disability requirement, veterans must also meet the VA’s standard lending requirements to qualify for a VA home loan. Often, these requirements can be met through income from disability benefits. There’s also no minimum credit score required to secure a VA loan, although if you’re seeking assistance from other lenders, you’ll need a score of at least 580 to 620.

USDA home loans

Backed by the U.S. Department of Agriculture, the USDA loan program includes special options for disabled borrowers. Like the VA loans, USDA loans require no money down. Their home loans and grants for disabled home buyers fit into two categories.

USDA Guaranteed Loans

These loans, while backed by the USDA, are not backed by the federal government. Instead, they come from private lenders that are then authorized by the agency. Some of the most popular mainstream mortgage lenders are authorized to offer these USDA-backed loans. Requirements often include:

• An annual income no higher than 15% above the median income in your area
• A credit score of 640 or higher
• The property you’re buying must lie in a “rural area” as approved by the USDA

USDA Direct Loan

If you’re a disabled home buyer and you have an income below the median for your area, you could be eligible for a USDA Single Family Housing Direct Loan. This loan is a great option because it’s subsidized, and the USDA will cover part of your mortgage payments for a specified period of time. Both eligibility and the amount you receive depend on your overall household income.

Another plus for the USDA Direct Loan is that fixed interest rates can be as low as 1% when modified by payment assistance. You can’t find rates like that through many other mortgage programs. Disabled borrowers can qualify for a USDA Direct Loan if:

• You currently don’t have decent, safe, or sanitary housing
• You can’t secure an affordable mortgage
• You meet citizen or certain non-citizen requirements
• You have low income compared to other households in your area
• You aren’t barred from federal loan programs

There are also requirements that relate to the property you’re purchasing, including:

• The home’s square footage must be 2,000 or less
• The price of the home must lie within local loan limits
• The home must be used as a residence only, with no income-producing activities allowed

HUD Housing Choice Vouchers

The Housing Choice Voucher homeownership program is one of the best home loans and grants for disabled homebuyers who fit specific income requirements. This voucher program allows people who qualify for rental assistance through Section 8 to use their voucher to purchase a home, rather than rent. So, instead of covering the cost of rent, HUD covers mortgage payments and related homeownership costs.

Not all public housing agencies offer these vouchers, so consider meeting with a housing counselor in your area if you’re interested in this option. Keep in mind there are several requirements for eligibility, including:

• Household income must not fall below the monthly federal SSI benefit for individuals living alone
• Buyers must participate in their local Public Housing Authority’s pre-assistance homeownership counseling program
• Buyers must choose an acceptable property that meets HUD’s criteria

Housing grants

If you’re a disabled individual and you don’t qualify for a zero-down VA or USDA loan, you may find it difficult coming up with the cash to cover the down payment and closing costs associated with purchasing your new home. Fortunately, many special assistance programs exist to ease the burden of these out-of-pocket costs — and disabled individuals have access to many more programs than the average home buyer.

Depending on the state in which you’re buying your property, there are certain down payment assistance programs (DAPs) at your disposal. These programs offer funds to cover down payment and closing costs, and most of them are geared toward first-time home buyers or those with low incomes. This assistance often comes in two general forms:

• Down payment grants: Financial assistance that doesn’t need to be repaid. You can look at it almost as free money.
• Down payment loans: While this form of financial assistance does need to be repaid, these loans often come with low or zero interest, and some are even forgivable if the buyer remains in the home for a set number of years (usually five to 10).

Need help navigating the confusing landscape of home loans and grants for disabled home buyers? At Orchard, we work with experienced real estate agents who can connect you with expert information about the options that apply to your situation, making it easier for you to proceed on the most favorable terms.