Refinance & Mortgage Guide for People with Disabilities
This guide seeks not only to provide the reader with the most relevant and essential resources needed to navigate the myriad of red tape and sometimes rigid processes regularly associated with real estate purchases; it also aims to educate you.
To summarize, by the end of this guide you should have a basic understanding of the following:
- The advantages and disadvantages of purchasing a home
- Keys steps to follow in the buying process
- The types of mortgages available to you as a home buyer
- Financial and Legal resources available to you
- Final tips & Warnings
Many people with disabilities agree that one way of taking charge and exercising some degree of control in their lives is by becoming a home owner. If you are currently a home owner who has recently been disabled, you may have new physical, mental and financial restrictions and needs which affect or even threaten your ongoing ability to maintain your home. Results of recent studies also reveal that only a small segment of people with disabilities own their own residences. Instead, the majority of the nation’s people with disabilities live in group residences, therapeutic or rehabilitation institutions, nursing facility complexes, or in the home of a family member. A small percentage of children with disabilities live in adoptive or foster homes; and some communities, churches, civic groups and charitable organizations are now promoting programs which encourage families to sponsor a senior citizen, adolescent or child who is mentally challenged or physically impaired.
However, many psychologists, M.D.s and other medical staff members, social workers and community leaders agree that for the majority of adults with disabilities, some level of independent living is highly beneficial both to their emotional well-being and to development of self-reliance and confidence. Of course, as home owners, adults with disabilities can ideally have and maintain such levels of control and responsibility in their lives, thus enhancing their feelings of self-worth and independence.
Chapter 1 – Historical Overview
As a person who’s disabled in the United States, whether you live in a public housing facility or a private residence, Federal laws protect you from discrimination due to your disability. Not only must all residential property owners and realtors abide by legal requirements for accessibility and usage of rental apartments and houses for sale in the present day real estate market, but they must also abide by laws prohibiting discrimination against interested potential buyers and renters with disabilities.
Another very important aspect of Federal legislation protecting the disabled is that the term “disability” has been clearly defined. By definition, an individual with a disability is someone with a mental or physical limitation that causes definite and lasting impairment of at least one major life activity. Generally included impairments or handicaps are loss of hearing, mobility and sight, as well as such chronic conditions as alcoholism, drug addiction, mental illness and retardation, AIDS and AIDS related illnesses and medical conditions. The basic life activities and functions referred to are breathing, hearing, seeing, walking, talking, performing simple tasks, elementary learning and self-care. Aside from being quite helpful when applying for home healthcare services, disability insurance compensation, and various types of funding, a generally accepted definition of the term is a great aid in acquiring a good mortgage when a person with a disability makes the decision to get onto the property ladder.
Chapter 2 – Pros and Cons of a Disabled Person Acquiring a Mortgage
There are both advantages and disadvantages associated with successfully obtaining a mortgage and purchasing a home as a person with a disability.
- If you are presently receiving therapy or rehabilitation treatments at a medical or community facility, you may now choose to have these treatments provided in your new private residence by home healthcare workers. Or, if continuing to receive treatment at an ambulatory facility is best for you, you can now arrange transportation to and from that facility and your home, usually funded by your medical disability insurance.
- Homeownership comes with an immense sense of freedom and independence. As a home owner, you are free to install ramps, handlebars, beds and baths for the handicapped throughout your home, as needed. You can structure your time as you like, leading a more relaxed life than is often possible in a nursing facility or group residence.
- However, as a new home owner with one or more personal handicaps or impairments, getting the lay of your local vicinity will help the bedding in period of a new home. For instance, you will need to familiarize yourself with services and amenities readily available in your neighborhood and surrounding community. Is public and/or private transportation also available and easy to access? Do stores, shops, pharmacies and service businesses provide delivery of food, clothing, medicines, household and appliance maintenance supplies when requested? Are there smooth sidewalks and easy walking areas without steps in public areas near your house? Is wheelchair access commonly available, if needed, in buildings you will need to enter and exit? Such issues with immediate relevance and importance, as well as financial questions, can often be discussed and resolved well ahead of your move to your new home, by consulting a professional, experienced housing counselor.
- The primary financial concerns you will now face as a home owner with a disability can seem somewhat overwhelming if you are confronting them alone. Yet, with the expert advice of a knowledgeable housing counselor, many potential problems can be avoided completely or dealt with quickly and efficiently.
Chapter 3 – Getting Started in the Home Purchasing Process
Once you’ve decided you would like to become a homeowner you will need to adhere to the following steps:
At the Bank: Together with your housing counselor should contact your bank to apply for a mortgage loan. The bank will then evaluate your overall financial status by checking your annual income, yearly expenses, outstanding debts and credit history. Since you are disabled, your income and other financial data may differ substantially from those of other people in your age group who are not disabled. Your housing counselor can be helpful in outlining your special needs and limitations which affect certain figures in your financial profile. If this is your first mortgage application, your counselor and bank loan officer can also assist in your full understanding of loan down payments, mortgage rates (or interest rates), monthly principal payments and additional ongoing costs. Your counselor can also help you find other suitable financial aid programs to supplement and enhance your overall financial situation. (Some of the best informed housing counselors are obtainable through HUD, the Department of Housing and Urban Development.)
Outline your needs: Next, you, your counselor, and perhaps your M.D., a nurse or home care worker who fully understands your condition, should make a complete listing of your special needs in order to determine what home type and interior design will best meet your daily requirements. If you get pre-qualified for a mortgage loan, this will enable you to ascertain a realistic estimate of how much you can reasonably afford to spend on a house along with any necessary accessories and remodeling. And, above all else, be aware that some mortgage loan representatives and even bank loan officers may not offer you a full range of mortgage opportunities simply because of your type of disability.
Since 1990, there have been some remarkable milestones in raising the number of national home owners among minorities and people with disabilities:
|— In 1990, the Low Income Housing Preservation and Resident Homeownership Act was passed, preserving and rehabilitating low and moderate income housing, which benefited many home seekers.
|— In 1993, President Clinton increased available financing for housing by means of an Interagency Policy Statement on Credit Availability.
|— In 1994, Fannie Mae made a $1 trillion commitment to increase targeted mortgage loans to minorities and people with disabilities.
|— In 1999, NAHB, HUD and the nation’s city mayors joined forces and interests to build new homes in both inner city neighborhoods and older suburban areas, making more homes available for lower income families, minorities and home seekers with disabilities.
Chapter 4 – Types of Mortgage Loans Available
Beginning as a government agency in 1938, Fannie Mae became a private company owned by shareholders in 1968. It offers numerous mortgage products and programs which provide equal opportunities for becoming home owners to people with disabilities or handicapped family members. Programs currently in operation include:
- Community HomeChoice – for the disabled at low to moderate income levels. It provides for flexibility of Loan-to-Value ratios (LTVs), down payment sources, qualifying ratios, and credit establishment.
- Community Living – a lending product structured to offer financing for small, group homes for children and adults who are disabled and cannot live independently. These mortgage loans are different from more traditional mortgage designs since borrowers are not necessarily individuals. Also eligible as applicants are non-profit and profit seeking corporations, limited partnerships, and government agencies aiding both children and adults who are disabled.
- Community Landing – varied mortgage programs, often with low or no down payment requirements designed specifically to benefit applicants by helping them conquer the two most common obstacles to owning a home: down payment funds and qualifying income. These mortgage products usually have lower closing costs and a higher debt allowance than most traditional mortgages.
The Most Popular Mortgage Types
Fixed Rate Mortgages – This variety of mortgage loan (often referred to as “the granddad of all mortgages”) is now offered as 10-year, 15-year, 20-year, 30-year, 40-year, and 50-year fixed-rate mortgage loans, and all are completely amortized.
FHA Loans – FHA mortgages are government insured and come with the lowest possible payment requirements.
VA Loans – Veterans Administration loans are provided for veterans of the U.S. Armed Services. These loans are government guaranteed, and the borrower is not required to make a down payment.
Interest-Only Mortgages – These loans include an option to render an interest-only payment.
Hybrid Varieties of Mortgages
Option ARM Mortgages – These adjustable-rate mortgage loans can be complex. However, their main feature is that of a fluctuating interest rate allowing borrowers to make choices from various payment options and index rates.
Combo / Piggyback Mortgage Loans – This variety of mortgage loan is comprised of a first and second mortgage.
Adjustable-Rate Mortgages — ARMs come with fluctuating interest rates which can actually remain fixed for a substantial period before adjusting.
Mortgage Buydowns – Mortgage buydowns allow borrowers to pay a lower initial rate of interest. Lenders, buyers or sellers can buy down the interest rate.
Specialty Mortgage Types
Streamlined-K Mortgage Loans – This FHA loan plan provides funding to borrowers for the purpose of renovating or making improvements to a home (and can be compared to the 203K loan program).
Bridge / Swing Loans – This variety of mortgage loan can be useful after a seller has put a house on the market which has not yet sold. To enable the seller to buy another home, the unsold home is used as security or collateral (or swing).
Equity Mortgages – These loans are second position and junior to the first loan. With an equity loan, the borrower can draw funding from a line of credit.
Reverse Mortgages – Anyone over 62 years of age can apply for a reverse mortgage. With this mortgage loan plan, for the duration of time the borrower lives in a home, the lender makes monthly payments to the borrower.
Obtaining a second mortgage can be quite helpful in handling unexpected, but unavoidable expenses, such as automobile repairs, home repairs and improvements, or extra college or business expenses. A second mortgage is simply a loan taken out against your property (your home) subsequent to your first, or primary loan. Your home serves as collateral for acquiring the second loan. Since the second mortgage loan takes second place priority to your first mortgage, if you should have the misfortune of defaulting on both loans, you must pay off your primary loan first. It can be advantageous to obtain a second mortgage loan in such circumstances as:
- You need to pay off a sizable debt balance;
- You need capital for a start-up business or an attractive investment opportunity;
- You do not want to pay costs of private mortgage insurance (to avoid this expense, your second loan must cover 20% of the home’s purchase price).
- You want to buy a new car, more property, or make extensive home improvements;
- You want to build another home or commercial structure.
By means of a second home loan, you can borrow to the limit of your home’s equity, or up to the amount of the home value which you now own outright. Although some lenders will let you have a second mortgage equivalent to 125% of the appraised value of your home, the majority of lenders will allow you a second loan which brings the total loan-to-value ratio of both loans equal to 85% of your home’s value.
Your interest rate on the second loan acquired will be greater than that on the primary loan, especially since, should you default on your loans, you must pay off the primary one first.
Both fixed rate home equity loans and adjustable rate home equity lines of credit can be obtained, based on your credit score, total loan to value ratio, and relative to currently existing market trends.
By consulting a number of lenders and obtaining quotes, you can shop for the most appropriate second loan for your needs. After you fill out the necessary paper work to apply for the loan, an appraisal will be conducted to ascertain the present value of your home. At the closing for the second loan, you must pay closing costs, just as you did when obtaining your first loan.
After you acquire your second mortgage loan, you can then refinance the primary loan. At this time you should request that your lender make the second loan subordinate to the refinance loan. Unless you do so, the second loan will become the primary loan, while the refinance mortgage loan becomes secondary.
Since, if you default on the second mortgage, you could lose your property due to foreclosure, it is imperative that you undertake a complete budget analysis before acquiring the second loan.
Chapter 5 – Benefits of Refinance Mortgages
If your monthly payments and other expenses are steadily increasing, or if you have mounting debt balances which you would like to clear as soon as possible, you should consider the benefits of refinancing your mortgage. The mortgage refinancing process actually replaces your present mortgage loan with a new loan having a better interest rate and more manageable terms and conditions. Your home will now serve as security for both loans. At the same time the second loan pays down the existing primary mortgage, the remaining funds can be used to best benefit you and the projects you choose to pursue.
The following are five legitimate reasons for choosing a mortgage refinance:
- You wish to save more on a regular basis. With a mortgage refinance, your monthly payments will decrease, provided you are successful in getting a lower rate of interest.
- Your desire is to pay down your mortgage swiftly. By reducing your loan term, you can shorten the duration of your mortgage. Although your monthly payments will subsequently increase, you will save money in interest payments. And, what’s more, you will eliminate your debt more quickly.
- You are in need of cash flow to pay credit card balances. Having extensive equity in your home will enable you to refinance and borrow beyond the current loan balance. Then, with the extra cash resulting, you can eliminate high interest debts. Additionally, in some cases a refinance mortgage loan may be a tax deduction.
- You see the advantage in consolidating two loans into a single loan. With sufficient equity (based on high appreciation), you can consolidate two loans into one. With any luck, monthly payments on the second mortgage may be lower than the combined payments on the two mortgage loans.
- You favor converting an Adjustable Rate Mortgage (ARM) into a Fixed Rate Mortgage (FRM). With an FRM, the lender is unable to increase your monthly interest payments throughout the duration of the loan, so your payment amounts due each month will not vary.
Chapter 6 – Useful Resources for Disabled Citizens
FHA: Both the FHA (Fair Housing Act) and the ADA (Americans with Disabilities Act) offer protection to the disabled in all areas of housing. While the ADA safeguards the rights of people living with handicaps, the FHA offers protection specifically relative to home ownership. Numerous additional laws and regulations structured to protect the interests of those U.S. citizens and residents with disabilities can be found on the official HUD Web site: http://www.hud/gov.
When contacting realtors, remember that the Fair Housing Act prohibits discrimination against disabled persons purchasing or bidding on homes. Under FHA, multifamily residences built after March 13, 1991 must satisfy specific standards of accessibility, such as:
- Accessible entrance from an accessible street or road;
- Doorways sufficiently wide to accommodate wheelchairs;
- Easily reachable light switches, outlets and thermostats;
- Bathroom reconstruction, if needed, for the disabled;
- Accessible kitchen space and appliances.
The SSI: The Social Security and Supplemental Security Income disability programs are also a good place to turn for financial benefits. In general, Social Security has a comprehensive financial assistance program which includes the nation’s most extensive variety of applicants. As a source of additional money, SSI may provide the funding to stabilize your income so you may qualify for government backed mortgage loans. One benefit of applying for funding from SSI is that, provided you file your application within 60 days of your first contact date, if you are approved, your initial funding start date will coincide with the date of your initial agency contact.
The Section 8, Housing Choice Vouchers: This is a HUD Program which grants financial aid to moderate and low-income families with disabilities for the purpose of renting or buying a home. It gives special attention to first-time home purchasers needing assistance in meeting monthly mortgage payments.
Habitat for Humanity (HFH): This is a globally recognized organization having constructed homes worldwide for needy families and single people, as well as the disabled. As a Christian non-profit group, HFH builds and grants accessible homes with mortgages sponsored by means of donations, and through private, federal and state sources. Home owners who receive aid from HFH, in turn help build their own Habitat homes, as well as future Habitat houses for other applicants. HFH feels this involvement gives all participants a strong sense of self-worth, independence and community support.
The National Opportunities for Affordable Housing Foundation (N.O.A.H.): is a non-profit agency which helps make both buyers and sellers knowledgeable concerning good real estate practices and decisions. It is a reliable source to consult on affordable housing and aid for down payments and closing costs. With special concerns for minorities and people with disabilities, the N.O.A.H. Foundation helps first and second-time home buyers to locate mortgage assistance programs at both the state and local government levels, such as: Down Payment and Closing Cost Assistance Programs; Grant Funds Programs; and Below Market Interest Rate Programs.
Homes for Our Troops: This is a non-profit organization providing individually adapted homes for severely injured and disabled U.S. veterans of military forces service, at no cost. It is funded by donations from a wide range of corporate, building industry and community organizational donors.
Chapter 7 – Final Tips & Warnings
When Should You Refinance Your Mortgage?
- You can consider refinancing your mortgage after you build up 10% or more equity in your home. (The requirement for refinancing Fannie Mae mortgages is 5% equity.) In some instances, you may be allowed to refinance with even less than 5% equity, but a payment may be required before doing so to even out the difference in equity.
- When in doubt, follow the 2% Rule. According to the 2% Rule, a good time to refinance your mortgage is when the refinance interest rate is 2% lower than the interest rate of your present mortgage loan. Your interest savings will assist you in regaining the cost of the new loan. Although it is tempting to go for no-cost or low-cost refinance mortgages, such loans often come with high interest rates and may be difficult to obtain during a down-swing in the credit market. Prior to applying for mortgage refinancing, be sure to comparison shop among lenders for the best possible refinancing interest rates.
- Avoid making late payments. The majority of lenders request that you have no late monthly payments during the 12 months preceding any application for refinancing your mortgage loan.
- Review your credit report and remove any inaccuracies or negative information before applying for refinancing. Failure to do this may prevent you from obtaining a refinancing loan at a competitive rate.
When Should You Refrain from Refinancing Your Loan?
- If the value of your property has decreased, it may not be a good time to refinance your mortgage loan. If you should refinance up to 80% of your home’s appraisal value while your property value is down, the amount of your first mortgage loan may be greater than the amount you now borrow. In this case, you will not be able to pay down the initial mortgage with your newly acquired loan.
- If you are in the last stages of paying off a 30-year fixed rate mortgage loan, refinancing will not be helpful. The amount of your equity loss will far exceed the remaining amount of your loan.
- Refinancing is not a recommended option if the amount of your equity is substantially diminished due to a second mortgage or home equity loan. And remember, it is very unusual to locate a refinance loan equal to 100% of the original mortgage.
- Refinancing is also not recommended if you have just a few years remaining on your present loan. Obtaining an additional loan at this point will only serve to increase your debt once again. And, whenever you are making a decision about refinancing a loan, you must determine whether it’s to your current advantage to choose a simple interest rate adjustment refinance option or a refinance plan that will provide you with extra available funds.
Through the concerted efforts of many dedicated organizations, agencies, designated interest support groups, medical and healthcare facilities and staff, government legislation and funding agencies, communities, industries, social and charitable groups and strongly motivated individuals, the number of home owners with disabilities is gradually increasing each year in the U.S.
With the ongoing support and guidance of such dedicated groups and individuals, along with new and innovative avenues and opportunities for obtaining acceptance for the latest advances in home owner mortgages, home equity loans, and other financial products and tools, the nation as a whole will gain knowledge and awareness of the specialized needs and concerns of the disabled population. At the same time, the disabled will continue to gain new levels of independence, self-reliance and personal esteem by becoming enthusiastic and successful home owners and vital, supportive, contributing community members and leaders.
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