Home Loans on Social Security: Options and Eligibility (2024)

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• If the only income you receive comes from Social Security, you may still be able to qualify for a mortgage.
• In some cases, a lender might be able to "gross up" your income if the benefits you receive aren't taxable.
• In addition to a sufficient income, you'll need a low debt-to-income ratio, good credit score, and large enough down payment to qualify for a mortgage.
• Shop today's 30-year mortgage rates.

Before approving an applicant, mortgage lenders will look at their income to ensure they have the ability to repay the money they're borrowing. As long as your income comes from an acceptable source, it shouldn't prevent you from getting approved for a mortgage.

If you receive Social Security income, you can use it to qualify for a mortgage. But whether you'll ultimately be approved will depend on your overall financial situation.

Understanding home loans for seniors on fixed income

Retired individuals and others who live on a fixed income can sometimes have a more difficult time qualifying for a mortgage if their income is too low relative to the amount of debt they'd be taking on. But if you have a sufficient income that comes from an acceptable source, lenders can't turn you down simply because of your age or the fact that you receive Social Security.

Seniors have access to a number of loan products, including some that traditional borrowers don't. Consider these mortgage options for seniors on Social Security:

Reverse mortgages

Reverse mortgages are a type of mortgage loan that works in reverse. Instead of making monthly payments to the lender, the lender makes them to you, paying you out of your home's equity. These can be monthly payments, a line of credit, or a lump sum (or a mix of these).

The loan only comes due when you sell the house, pass away, or permanently move — to a nursing home facility or something similar.

FHA loans for seniors

FHA loans are another option you might consider. These are backed by the Department of Housing and Urban Development and allow for lower credit scores than many other programs. You'll need at least a 3.5% down payment to qualify.

VA loans for senior veterans

If you're a veteran (or the spouse of one), you can also think about doing a VA loan — a kind of mortgage backed by the Department of Veterans Affairs. These require no down payment and very low rates compared to other options.

Conventional loans

Finally, you can also think about doing a conventional loan, though these require higher credit scores than others. You will also need to make at least a 3% down payment (or 20% if you don't want to pay for private mortgage insurance).

Eligibility requirements

The requirements you'll need to meet vary based on your loan program, but you can generally expect the following when qualifying for a home loan on Social Security:

Income verification

Mortgage lenders can't deny credit to applicants simply because their income comes from Social Security. Social Security income is viewed the same as any other type of income, with one exception that can work in recipients' favor.

Mortgage lenders typically look at an applicant's gross income when qualifying them for a mortgage. Your gross income is what you earn before taxes are deducted from your paycheck, so the lender's calculations are set up to account for that. But many individuals who receive Social Security benefits don't have to pay taxes on that income.

For example, if you receive Social Security Disability Income (SSDI) that you aren't required to pay taxes on, your lender may be able to "gross up" your income by 25%, according to Shashank Shekhar, founder and CEO of InstaMortgage.

"So if you're getting $1,000 a month, that income could actually go up to $1,250 when it comes to the underwriter qualifying the income, because a lot of these incomes are tax-free," Shekhar says.

Whether your income will be adjusted depends on the type of benefits you receive and whether they're taxable or not. Standard Social Security retirement benefits and SSDI may be taxable up to a certain amount if your total income is more than $25,000 (or $32,000 for spouses filing jointly). Supplemental Security Income (SSI) isn't taxable.

Credit score and DTI requirements

Once you've verified your income and completed the rest of your application, the lender will look at your overall financial profile to determine whether you qualify for a mortgage, and if so, how large of a monthly mortgage payment you can afford.

Homebuyers with lower incomes can have a harder time obtaining mortgage approval because a mortgage can push your debt-to-income ratio (DTI) too high. Your DTI is the total of all your monthly debt payments relative to your monthly income. If your total income is $2,000 a month, for example, a $1,000 monthly mortgage payment would put you at a 50% DTI, assuming you don't have any other debts.

A DTI of 50% is typically the maximum a lender allows — but depending on your lender and the type of mortgage you're getting, it may be lower.

Lenders will also consider your credit score. The exact score you'll need depends on the loan product you choose. With an FHA loan, you may be able to qualify with a credit score as low as 500. With conventional loans, it's typically 620 or higher.

Age and Social Security income

Your age and how much Social Security income that allows you to take in will make a difference, too. The more you're bringing in each month, the easier it will likely be to qualify for any loan program.

Benefits of home loans for seniors

Senior home loans come with several benefits for borrowers. These include:

Financial security

Locking in a consistent monthly payment for years to come can help provide financial security for seniors, making it easier to budget and stretch those retirement dollars.

In the case of reverse mortgages, it can also provide a source of extra income, which you can use to cover the costs of bills, medical expenses, or any other costs you might be dealing with.

Homeownership flexibility

These loans can also provide some amount of flexibility for senior homeowners, allowing them to age in place without having to sell their home, downsize, or move to a different facility. Reverse mortgages can be particularly helpful in allowing seniors to stay in the homes they're comfortable in without draining their retirement dollars.

Lower monthly payments

Because many senior loan programs come with low rates, they can mean low monthly housing payments, too. With reverse mortgages, you won't have monthly payments at all (instead, you'll get paid.)

How to apply for a home loan on Social Security

If you're looking to get a home loan on Social Security, you'll need to follow these steps for applying for a home loan as a senior:

Find the right lender

To start the process, find the loan program and lender you're going to use. Be sure to compare at least a few options, including credit unions, banks, and online lenders, and don't be afraid to negotiate to ensure you get the best terms. Each lender should offer you a loan estimate, which you can use to compare each on fees and costs.

Submit required documentation

You'll need to submit documents when you apply for a mortgage that show you have a steady source of income. For Social Security benefit recipients, this means you'll need to show your lender that you're currently receiving benefits and the amount you receive each month.

To get this information to share with your lender, you can request a Social Security Benefit Verification letter from the Social Security Administration's website.

You also may need to submit other documents, like bank statements, tax returns, W-2s, and more. Your loan officer can break down the exact documents you'll need.

Application process

The application process for most mortgages is fairly simple. You'll fill out an application, providing some details about your income, homebuying goals, and financial situation, and then you'll submit any documentation the lender requires.

From there, your home may need to be appraised, and you'll schedule a closing date. This is when you'll pay your closing costs and finalize the loan.

Getting a mortgage on Social Security FAQs