How to Buy a Low Income Home


If you have a steady job but are earning less than you would like, you may fear that this could hamper your home purchase. The good news: there are mortgages and subsidies out there that can help you become a homeowner on even a low income.

An apartment building in suburban Dallas, Texas

© Trong Nguyen / Shutterstock
An apartment building in suburban Dallas, Texas

Can I buy a home on a low income?

The short answer, yes, you can buy a low income home thanks to mortgage programs for low to middle income borrowers.


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“A low income can increase your debt-to-income ratio (DTI). This limits some of the loan program options you may be eligible for, but it doesn’t mean you absolutely cannot buy a home, ”said Balenda Hetzel, regional director of production at Inlanta Mortgage, headquartered in Pewaukee, Wisconsin.

Mortgages and low income grants

1. HomeReady Mortgage

Fannie Mae’s HomeReady mortgage program addresses one of the challenges of buying a low income home by requiring as little as 3 percent down payment. With this loan, your down payment and / or closing expense funds beyond savings can come from other sources, including grants and gifts, and you do not have to contribute any of the money yourself.

To qualify, your income cannot exceed 80 percent of the Area Median Income (AMI) for the location where you are buying a home. (You can look up local limits using Fannie Mae’s tool.)

While you can only deposit 3 percent with a HomeReady mortgage, you have to pay for mortgage insurance. However, these insurance premiums can be canceled once you reach 20 percent equity in your home. You pay for mortgage insurance with your monthly mortgage payment, so it adds to the cost, but it’s easy to exit once you hit that 20 percent.

Additionally, you can add a co-borrower to a HomeReady mortgage even if that person does not plan to live in the house.

“Unlike other home loans, not all borrowers need to live in the property,” says Roselina D’Annucci, a New York-based real estate attorney with Serrano and Associates, PC. If they live at home, they can take the loan with them to help their children qualify for a mortgage. “

With a HomeReady mortgage, your mortgage lender can also use your rental payment history to qualify you for the loan, adds D’Annucci.

2. Home Ownership Possible Mortgage

Like a HomeReady mortgage, Freddie Mac’s Home Possible mortgage requires only 3 percent less, and the down payment can come from multiple sources including family members, employer support programs, and even sweat capital (if you have the skills to provide labor or materials) to renovate the home, That means).

Similar to HomeReady, your income cannot exceed 80 percent of the AMI on a Home Possible mortgage, and there is also a compulsory mortgage insurance requirement.

“There are a few other conditions: if you are a first-time buyer, you must complete a home ownership training program,” added Tabitha Mazzara, director of operations at MBANC, a mortgage lender.

The first class requirement also applies to the HomeReady program.

3. FHA loans

An FHA loan that is backed by the Federal Housing Administration can be obtained for as little as 3.5 percent if your credit score is 580 or higher.

“This loan has less stringent requirements that can help low-income borrowers or those with poor credit ratings,” said Gerwin Wallace, a mortgage lender with Silverton Mortgage in Anniston, Alabama. “You can also pay lower closing costs with this loan.”

However, if your down payment is less than 10 percent, FHA loans come with lifelong mortgage insurance (in other words, it cannot be canceled) which can be a disadvantage and the home you are trying to buy must pass an appraisal to make sure it complies with FHA safety guidelines.

4. VA Loans

Perhaps the most generous type of low income mortgage is a VA loan available to active service members, veterans, and surviving spouses. A VA loan doesn’t require you to invest money or pay for mortgage insurance, the closing costs can be lower than other loans, and you can get a lower interest rate than other financing options.

In addition, the VA loan is a lifetime benefit; This means that if you are eligible, you can get a VA loan multiple times.

However, you will have to pay a financing fee for this mortgage, the amount of which will depend on whether you have already received a VA loan and how much down payment you are making, if any. These are additional costs to consider.

To qualify for a VA loan, “you must have good creditworthiness, steady income, and a VA certificate,” says Mazzara. “Also, your loan amount cannot exceed the appraised value of the house.”

5. USDA Loans

Another generous mortgage program is the USDA loan, which like the VA loan, does not require any money. You also don’t have to be a first-time buyer to get USDA credit.

However, the home must be in an eligible rural area, which means you may only qualify if you buy far from a town or urban location – although many suburbs are also eligible for USDA funding, according to Wallace.

In addition, your income cannot exceed 115 percent of the AMI, and you also pay for mortgage insurance with this loan in the form of an advance guarantee fee and then an annual fee.

6. Good Neighbor Next Door Program

Good Neighbor Next Door is a home purchase program for law enforcement officers, teachers, firefighters, and paramedics. The program, administered by the U.S. Department of Housing and Urban Development (HUD), allows borrowers to buy a home for 50 percent of the list price if they have lived in the property for at least three years.

However, the home must be a property in a “revitalization area” designated by the HUD and be available for sale through the program, and the listings will only be available for purchase for seven days. You also need to get a second mortgage and promissory note to qualify for the discount – but you are not responsible for the second mortgage or interest on it as long as you meet the three year residency requirement.

7. HFA loans

Not to be confused with an FHA loan, an HFA loan is another type of low income mortgage by Fannie Mae (called “HFA Preferred”) and Freddie Mac (called “HFA Advantage”) that only requires 3 percent down . HFA loans are available through government home finance agencies (HFAs) that work with mortgage lenders to provide affordable loans to low-income borrowers. In many cases, you don’t have to be a first-time buyer to qualify and you may also receive deposit assistance.

8. Advance payment support programs

There are a variety of Down Payment Assistance (DPA) programs, usually aimed at low to middle income borrowers. These programs are usually offered in the form of a grant (free money) or a loan, the latter of which may have to be repaid or may be waived after a certain period of time.

9. Mortgage Credit Certificate

A mortgage credit certificate (MCC) is a federal tax credit that can help low- and middle-income buyers or first-time buyers offset some of the money they owe in mortgage interest. As opposed to a tax deduction, MCCs offer beneficiaries a dollar-for-dollar tax credit of up to $ 2,000 each year. However, an MCC is not free. So if you qualify, contact a tax advisor to see if this is the right step for you. Often times, the savings on a 30 year mortgage exceed the upfront fee.

10. Prefabricated Homes and RVs Loans

Interested in a prefabricated vehicle or a mobile home? There is special financing available for this type of property that can be ideal for lower income borrowers.

“For example, MH Advantage is a Fannie Mae loan program to finance prefabricated homes,” explains Wallace. “It offers low down payment options, low monthly payments, and reduced interest rates compared to most standard prefabricated home loans. It also offers the ability to combine HomeReady, HFA Preferred mortgages, and other mortgage programs without being tied to a specific program. “

How To Qualify For A Low Income Mortgage

To improve your chances of getting a low income mortgage, it pays to prepare.

“I advise prospective buyers to keep their credit ratings and credit reports in good condition,” says Mazzara. “That way, you are eligible for lower interest rate loans.”

This includes paying your credit card and revolving debt balances, paying bills on time, correcting errors you see in your credit reports, and opening new credit accounts or lines of credit in the weeks leading up to a mortgage application, Wallace says.

“Also, you should meet with a trusted mortgage lender who can give you a better understanding of what you qualify for and what kind of loan is required,” Hetzel added. “Meeting with a lender early on gives you time to work on improving your credit score and saving the funds required to close.”

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