Federal fair housing laws prohibit mortgage lenders from discriminating against borrowers simply because they are disabled. It does not matter why they are disabled or even the because of the borrower's age. Any borrower receiving Social Security or Social Security disability cannot be automatically disqualified, charged a higher interest rate or forced into a different loan program simply because she receives Social Security or disability income.
Social Security Disability Basics
Social Security and Social Security disability are two different programs. The government makes Social Security payments to citizens who paid into the Social Security system and reached an eligible retirement age. Social Security disability provides payment to workers with long term disabilities or that are permanently disabled and who paid into the Social Security System. To receive Social Security disability, the applicant must prove his disability to the Social Security Administration in a process that usually takes years to complete.
Documenting Disability Payments
When the mortgage company receives an application from someone who receives Social Security disability payments, it asks for a copy of the disability awards letter and a letter from the borrower's doctor stating the disability should continue for least three years. It cannot ask the doctor what the disability is but can only ask about its likelihood of continuance. Most mortgage companies require the borrower have received the disability payments for two years and prove it's likely the payments will continue for the next three years.
Debt-to-Income Ratios
Because most Social Security disability payments are not taxed by the IRS, mortgage companies increase the amount of income received by 125 percent. This is because most other types of income are taxed by the IRS. They increase nontaxable income so that it qualifies for approximately the same amount of loan as taxable income would. The mortgage company takes the new proposed mortgage payment and adds it to all of the existing debt payments and divides the sum by the amount of income received. Most lenders prefer the total amount of debt not exceed 40 to 45 percent of the borrower's qualifying income. If a borrower receives $2,000 of Social Security disability, then the mortgage lender will qualify the loan based on $2,500 of income. If the mortgage company requires the total debt not exceed 40 percent of the borrower's income, then the borrower's total amount debt payments required, including the house payment, house taxes and insurance costs cannot exceed $1,000.
Filing a Complaint
Anyone receiving Social Security disability and who feels to discriminated against should contact the office of Fair Housing and Equal Opportunity and file a complaint. This is a division of the Department of Housing and Urban Development (HUD), which oversees and regulates fair housing and fair lending laws. Homeowners can contact them at 1-800-669-9777 and file a complaint over the phone.
