Disability Home Loans
Fannie Mae loans are available to all populations across the United States, including low-income families and the disabled. Every loan comes with eligibility requirements. Those requirements will shape the underwriting process, during which applicants will need to provide documentation on income, employment and other types of personal information. The government-sponsored enterprise (GSE) commonly known as FNMA or Fannie Mae tasks lenders with evaluating an applicant’s ability to afford a loan. Therefore, if applicants have a poor financial history, they will not be eligible for a loan.
However, to accommodate homebuyers with special circumstances, Fannie Mae home loans for the disabled are more flexible. The company recently expanded what is considered valid and acceptable in several areas, namely income and assets. As such, homebuyers have more access to the homes they want. For more information on Fannie Mae’s flexible underwriting process, review the sections below.
What are the minimum requirements for Fannie Mae loans?
When applying for a loan, there are Fannie Mae loan requirements that you must meet. Lenders have a list of qualifications relating to applicant’s income, assets and financial history. The law requires that lenders ensure borrowers have the funds to afford a mortgage loan. As such, lenders have a list of requirements to determine an applicant’s eligibility.
One of the most important factors lenders look for when assessing your eligibility for a Fannie Mae loan is your income. Lenders want to make sure that you have a consistent influx of money so that you will be able to make your monthly payments. Applicants typically need to provide proof of income through W-2 forms, tax returns and pay stubs.
Fannie Mae income guidelines require lenders to look for stability in income. As such, the frequency at which you receive your income and changes in income over the years are an important part of the assessment. Your ability to maintain employment is also important. If you have several gaps in your employment history, lenders may view that as an unstable work history. As such, you are more likely to default on your payment.
While there are no specific Fannie Mae loans for the disabled, the government-sponsored enterprise (GSE) does offer flexible underwriting practices as it relates to income. This means that instead of only considering salaries and bonuses as sources of income, they have expanded the acceptable sources. Now, valid sources of income also include:
- Disability income.
- Child support or alimony.
- Social Security Income (SSI).
- Pension Income.
- Temporary Leave income.
- Foster Care Income.
- Housing or parsonage income.
Once Fannie Mae lenders have a detailed overview of the applicant’s income, they will require a full list of their liabilities. These refer to all of the recurring bills that an applicant has. This can include student loans, credit cards and other expenses. With this information, they will calculate the applicant’s debt-to-income (DTI) ratio. This ratio is a way that lenders measure the potential borrower’s ability to afford monthly mortgage payments.
Lenders obtain the DTI by dividing the applicant’s total monthly debt by their total monthly income. Generally, lenders selling Fannie Mae loans cannot accept a DTI ratio that is more than a certain percentage. However, there are special circumstances where a lender may accept a DTI ratio slightly above that percentage.
Note: For more information on DTI ratios, download our comprehensive Fannie Mae guide.
In addition, when lenders create Fannie Mae loans for the disabled, they allow more flexibility in calculating the DTI ratio. Before, lenders only evaluated the borrower and the living occupants’ income and liabilities. However, they now allow borrowers to include a non-occupant’s DTI ratio. If a non-occupant borrower has a DTI ratio that is lower than the occupant borrower’s DTI, it can lower the overall ratio and improve the applicant’s chances of loan approval. In this case, Fannie Mae lenders will combine the two ratios to determine eligibility.
Credit also plays an important role when determining the best Fannie Mae loan for the disabled. Credit is a major indicator of an applicant’s financial past. It will reveal any payment delinquencies on their record. It will also reveal their credit utilization level and the number of accounts they have.
Fannie Mae lenders use it as a measure of how responsible an applicant may be. Having a long history of making late payments or opening up multiple credit lines is a red flag for lenders. It may indicate an inability to manage money properly. Therefore, this may lead to a loan application rejection. To qualify for a loan, applicants must have a credit score of at least 620. When evaluating a credit report, lenders will look at the account holder’s information, account history and activity. It will also look at trade lines, which are credit accounts on a credit report. There are no minimum or maximum requirements for these lines. However, having several credit lines open with high credit utilizations is not a good sign for lenders.
When assessing an applicant’s qualifications for a loan, Fannie Mae lenders will also look at their loan to value ratio. This refers to the amount of the loan divided by the value of the home for purchase. For Fannie Mae home loans for the disabled, this will determine the credit score required for loan approval. In turn, lenders will decide the type of mortgage for which borrowers qualify which may vary depending on their desired type of housing and down payment options.
For specific details home loans for the disabled, download our in-depth guide.
When applying for Fannie Mae with a long term disability, home buyers may have to obtain mortgage insurance. Typically, lenders require a 20 percent down payment on a property when signing up for a loan. However, that payment does not include other closing costs. When homebuyers are unable to provide this amount for a Fannie Mae loan, lenders may require mortgage insurance. In the event that you default on your payments, it provides additional security for the lender.