Disabilities have the potential to disrupt steady income streams. This is true whether an individual is born with a disability or is facing a temporary one. Individuals with disabilities utilize loans that can help cover various expenses. More significant purchases, such as medical expenses or homes, may be harder to pull off without borrowing money.
Today, we will provide a brief guide to the different loan options available for people with disabilities. Before proceeding, let’s go over some basic terminology.
What is a loan?
A loan is an agreement between one party providing funds to another. The recipient must pay back the amount lent to them within a timeframe set by the lender. The lender also determines a recipient’s loan eligibility through criteria such as credit scores.
Is a loan the same as a grant?
No. Like a loan, a grant is a fund one party provides to another. Unlike with loans, the recipient does not pay back a grant amount. Typically, receiving a grant requires some sort of application process referred to as “Grant Writing.”
The critical difference between a grant and a loan is the aspect of debt. If you receive a loan, you must pay it back (sometimes with interest). If you receive a grant, you don’t have to pay it back, but you might have to share how you will use the funds.
How will a loan affect benefits?
Taking out a loan can disrupt a person’s disability-based benefits. The Social Security Administration (SSA) assists people with disabilities through various benefit programs. Disability benefit programs provide a monthly allowance for eligible individuals.
Typically, loan companies base eligibility on the amount of income that an applicant makes without benefits. Such programs include Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI).
An individual’s resource value also determines eligibility. According to the SSA, resources are possessions of an applicant that can be liquidated and used for food or shelter. Resources include things like cash, land, personal property, and vehicles. Specifically, individuals receiving disability benefits have a resource limit of $2000, while Married couples have a limit of $3000.
This is where loans could complicate matters. The remaining amount will count toward your resource limit if you take out a loan and don’t use it all within a month. If your resources exceed your allowable limits, you will not receive benefits for that month.
Loans and disability rights
Borrowers with disabilities have the right to freedom from loan discrimination. The Equal Credit Opportunity Act helps to mandate these rights. According to the act, lenders cannot discriminate against potential borrowers on the basis of “receipt of public assistance.” This means that the loan company cannot deny potential borrowers with disabilities a loan just because they receive SSA benefits like those mentioned earlier.
Further protection comes from the 1968 Fair Housing Act. The Fair Housing Act protects borrowers from discrimination on the basis of disability. Though these rights are enforced by the Department of Housing and Urban Development (HUD), some borrowers with disabilities still face discrimination. Check out our article on the subject for more information.
An individual can take out a personal loan for many different reasons. Usually, these loans don’t require any collateral. Qualifying for a personal loan often requires meeting some minimum credit score. For those interested in a personal loan, Credible.com has a published list of the best loan lenders as of August 2022.
There are loan options for homebuyers with disabilities. There are also options for homebuyers who have children with disabilities.
Individuals with a full or long time disability may be eligible for a mortgage loan on a house. One such mortgage loan is the Fannie Mae HomeReady loan. These loans require a minimum credit score of 620, 3% of a down payment, and a low to medium income. According to The Mortgage Reports, “Long-term disability and Social Security benefits are both acceptable income sources for the HomeReady loan program.”
Home loans can also come from the Veterans Association (VA). No down payment is one of the best features of VA mortgages and has one of the best rates.
The US Department of Agriculture (USDA) also offers home loans that benefit people with disabilities. One such option is the USDA Guaranteed Loan. These are loans with funding from private lenders. Another option is the USDA Direct Loan. This loan helps to subsidize mortgages for individuals below their local median income rate.
The Department of Housing and Urban Development provides housing assistance for individuals below a certain income threshold. In addition to covering mortgage payments, HUD vouchers can be used to make a home more accessible.
Regardless of ability level, most business owners cover initial costs with the help of small business loans. Examples are business loan options include SBA 7(a) Loans, SBA Microloans, and Short Term Business Loans. These loans can have tremendous benefits for people with disabilities.
There are also loan options through vocational rehab programs. These are services dedicated to helping people with disabilities fund self-employment ventures. One such program, Veteran Readiness and Employment Self Employment Track are available for wounded veterans through the U.S. Department of Veteran Affairs.
Individuals use medical loans to finance medical expenses. The majority of medical loans have deferred interest. Interest will be charged from the start of the loan if you don't pay off the loan by the promotion's end.
Due to this risk, medical loans may not be the best option for people with disabilities. If someone receives federal benefits, they may be eligible to receive retroactive coverage for up to 3 months before receiving benefits. This social security disability option is recommended before looking into a medical loan.
Loans while waiting for benefits
Individuals waiting to receive their first disability payment may take out a loan to supplement their income in the meantime. However, this tends to be a risky strategy.
According to Forbes, “...around two-thirds of disability benefits claims are denied the first time. Thus, there’s a chance that you’d be signing up for a loan that you wouldn’t be able to repay right away anyway.”
Even if you have a disability, you have the right to fair consideration for a loan. A disability can disrupt your income, and loans can be an important resource. They can also be a helpful way to make larger purchases or initial investments.
However, loans aren’t always the best option. Depending on the scenario, they may cause complications and leave borrowers financially vulnerable. Understanding the terminology and the various options available can help individuals make informed decisions about their finances.