How can I buy a house with a low income?
Buying a house is one of the biggest milestones in life, but it can feel out of reach if you’re working with a low income.
The good news is, homeownership isn’t just for the wealthy. There are actually plenty of programs and loan options made for people in your situation.
If you’ve been wondering, “Can I buy a house with a low income?” the answer is yes! This guide will show you exactly how to make it happen.
Can I Buy a House if My Income Is Low?
You might be thinking that with a low income, buying a home is a long shot. But that’s not necessarily true. Lenders consider several factors when determining your eligibility for a mortgage loan, and your income is just one of them.
They’ll also look at things like your credit score, debt-to-income (DTI) ratio, and your ability to make a down payment. The important thing is to find a lender who understands your situation and works with low-income borrowers.
What is the lowest income for a mortgage?
There’s no set minimum income for a mortgage and one thing to keep in mind is that even if your income is on the lower side, there are ways to make yourself more attractive to mortgage lenders.
For example, a higher credit score can help you qualify for better interest rates, and saving for a larger down payment can also reduce your monthly mortgage payment.
It’s all about showing that you’re a responsible borrower who can handle the financial commitment of a home loan.
Which Types of Loans Make Sense for a Low-Income Buyer?
Fortunately, there are several loan options tailored specifically for low-income homebuyers. These programs are designed to make homeownership more accessible, offering lower down payments and flexible terms.
Here are some of the most common types of loan programs to consider:
VA Loans
VA loans, backed by the Department of Veterans Affairs, are a great option for eligible service members and veterans. One of the biggest advantages of VA loans is that they don’t require a down payment or mortgage insurance.
Plus, they tend to have lower interest rates compared to conventional loans. If you’ve served in the military, this could be an excellent way to buy a home with a lower income. Just make sure you meet the eligibility requirements set by the VA.
Am I Eligible for a VA Loan?
VA loans are available to active-duty service members, veterans, or eligible surviving spouses. You’ll need a Certificate of Eligibility (COE) and generally a credit score of 620 or higher, even though some lenders may accept a 500 credit score.
VA loans are flexible with income and debt-to-income ratios.
FHA Loans
Another option is an FHA loan, which is backed by the Federal Housing Administration (FHA). FHA loans are popular among first-time homebuyers because they offer lower down payments, often as low as 3.5%, and more flexible credit score requirements.
However, you’ll need to pay for mortgage insurance premiums upfront and as part of your monthly mortgage payment. This can increase your costs slightly, but it’s a small price to pay for the flexibility an FHA loan offers.
Am I Eligible for a FHA Loan?
FHA loans require a credit score of at least 580 for a 3.5% down payment, or 500-579 with a 10% down payment. Stable employment and a reasonable debt-to-income ratio are necessary. The home must be your primary residence.
HomeReady & Home Possible Loans
If you’re looking for a conventional loan with flexible options for low-income borrowers, consider Fannie Mae’s HomeReady or Freddie Mac’s Home Possible programs.
These loans offer low down payments (as low as 3%) and are designed to help low-income buyers purchase homes. They also come with homebuyer education requirements to ensure that you’re fully prepared for homeownership.
This kind of homebuyer education can make a big difference in understanding the homebuying process.
Eligibility for HomeReady Loan
These loans are available to buyers whose income is at or below 80% of the area median income (AMI). A minimum credit score of 620 is required, and completing a homeownership education course is mandatory for first-time homebuyers.
Eligibility for Home Possible Loan
Home Possible loans are for low- to moderate-income buyers with income at or below 80% of the area median income (AMI). A credit score of 620 is required, and borrowers must meet certain occupancy and income limits.
USDA Loans
If you’re interested in buying a home in rural areas, a USDA loan backed by the Department of Agriculture could be your best bet. USDA loans offer zero-down payment options and competitive interest rates.
Additionally, they have more lenient terms, making them ideal for buyers who might struggle to qualify for conventional loans.
Am I Eligible?
USDA loans are available to low- and moderate-income buyers purchasing homes in eligible rural areas. Your income must fall below 115% of your area’s median income, and a minimum credit score of 640 is typically required.
Are There Home Buying Programs for Low-Income Buyers?
Yes! There are numerous homebuyer programs out there, many of which are designed to help low-income buyers navigate the process of buying a home.
These programs can assist with down payment assistance, closing costs, and other expenses that often act as barriers to homeownership.
State and Local Homebuyer Programs
Many states and cities offer homebuyer assistance programs that provide grants, low-interest loans, or tax credits to help low-income individuals and families purchase homes.
These programs vary widely, so it’s worth doing some research to see what’s available in your area. For example, California offers a range of housing programs designed to make homeownership more attainable for low-income buyers.
Down Payment Assistance Programs
Saving for a down payment is often one of the biggest challenges for low-income homebuyers, but there are programs designed to help.
Down payment assistance programs can provide funds in the form of grants or loans to cover part or all of your down payment.
These programs are typically offered by nonprofits, government agencies, or housing finance agencies, and they can make a huge difference in getting you into a new home.
Employer-Assisted Housing Programs
Some employers offer homebuyer assistance as part of their benefits package. These employer-assisted housing programs can include everything from down payment assistance to help with closing costs.
It’s worth checking with your employer to see if they offer any kind of housing benefit that can ease the burden of buying a home.
Mortgage Credit Certificates (MCCs)
Another program that can help low-income buyers is the Mortgage Credit Certificate (MCC) program, which provides a tax credit to offset some of the interest you pay on your mortgage.
This can be a great way to reduce your overall housing costs, making home ownership more affordable in the long run.
How Can I Start the Homebuying Process?
Once you’ve explored your loan options and homebuyer programs, it’s time to start the process of buying a home.
It can feel overwhelming at first, but with the right steps, you’ll be well on your way to becoming a homeowner. Knowing your loan amount and whether you meet income limits will be essential at this stage.
Assess Your Financial Situation
Before diving into the homebuying process, it’s essential to assess your current financial situation.
Take a close look at your household income, debts, and savings. This will help determine how much home you can afford and what kind of loan terms you’ll qualify for.
Your debt-to-income (DTI) ratio is especially important, as lenders use it to evaluate your ability to repay the loan.
Lenders may also consider the area median income for your location when determining qualifying criteria for certain mortgage programs.
Budgeting for a Home Purchase
Once you’ve assessed your finances, create a budget for your home purchase. This should include your monthly mortgage payment, property taxes, insurance, and other housing-related expenses.
Make sure to account for any FHA mortgage insurance premiums if you plan on using an FHA loan. Setting a realistic budget can keep you on track and help avoid financial stress in the future.
Get Pre-Approved for a Mortgage
One of the first steps when you’re ready to start looking for a home is getting pre-approved for a mortgage. Pre-approval shows sellers that you’re serious about buying and gives you a clear idea of how much you can afford.
A loan officer can help you navigate the process, ensuring that you understand the terms of your loan and whether you're eligible for government programs like those backed by the HUD or gov-sponsored entities like Fannie Mae.
Getting pre-approved can speed up the process once you’ve found your dream home. When you’re ready, consider using our Same Day Mortgage pre-approval* service. It’s a fast and efficient way to get pre-approved, giving you a competitive edge in today’s market.
Work with a Real Estate Agent
Working with a knowledgeable real estate agent is another crucial step in the homebuying process. A good agent can help you find homes within your budget, guide you through negotiations, and handle all the paperwork.
They can also provide valuable insights into HUD programs, Good Neighbor Next Door programs, or other options through the Department of Housing and Urban Development.
Additionally, they might introduce you to down payment assistance programs or nonprofits that offer resources for low-income homebuyers.
Homeownership is Possible—Start Today
Buying a house, even with a low income, is entirely possible with the right resources and a clear plan.
By exploring loan options like VA loans, FHA loans, and USDA loans, taking advantage of down payment assistance programs, and working with a trusted real estate agent, you can make homeownership a reality.
If you need to refinance in the future, understanding your qualifying options and your home's value will be key to keeping your finances in order.
*Rate, Inc.’s Same Day Mortgage promotion offers qualified customers who provide certain required financial information/documentation within 24 hours of locking a rate on a mortgage loan the opportunity to receive a loan approval within 1 business day of timely submission of documentation and does not suggest that the borrower will receive funding on the same day as their application submission. Rate, Inc. cannot guarantee that a loan will be approved or that a closing will occur within a specific timeframe. Applicant subject to credit and underwriting approval. Restrictions apply. Visit rate.com/same-day-mortgage for terms and conditions.
Guaranteed Rate, Inc. is a private corporation organized under the laws of the State of Delaware. It has no affiliation with the US Department of Housing and Urban Development, the US Department of Veterans Affairs, the US Department of Agriculture, or any other government agency.