When it comes to buying a home, many people have concerns about being able to afford one.
For some, this is a question of financial stability. For others, it’s about finding the right place to call home. Regardless of your reasons, one thing is for sure—you need to have a realistic idea of your income and ability to pay.
There are many folks that would like to buy a home with low income but aren’t in a position to do so.
Over the last few years it has been an extreme seller’s market so finding a house for low income has been challenging to say the least.
In the last few years home prices have skyrocketed pushing the dream of homeownership out of reach for many would-be home buyers.
Could there be a shift to a buyer’s market on the way? Many believe it is possible. The chance to buy a house with a lower income could eventually become a reality.
Let’s have a look at some of the considerations, so you’re in a better position to buy.
Talk to a mortgage broker and get preapproved for a loan
If you have low income, renting has probably been your best option. However, If there is a real estate market correction that may change.
One option is to talk to a mortgage broker. They can help you get preapproved for a loan and find the best deal on a home.
Look at the best low income home loans available
There are specific low income mortgages that are worth looking into. Some of the loan programs that have more relaxed qualifications include
- FHA mortgages
- VA loans
- USDA loans
- Homeready from Fannie Mae
- Home Possible Advantage from Freddie Mac
FHA mortgages
An FHA mortgage is one of the most popular loan programs, especially those who don’t have significant incomes.
If your credit score is below 500, you may be able to find a participating lender willing to give you a mortgage.
If you are looking to buy a home, you will likely need to produce at least 10% of the purchase price as a down payment with a score that low.
To be eligible for this loan program with a lower down payment, your credit score must be above 580.
Lenders granting FHA mortgages also accept higher debt to income ratios. It is not unusual to see a mortgage lender grant a loan with a DTI around 45 percent.
An FHA mortgage offers borrowers the benefits of an adjustable-rate loan or fixed-rate program.
There is also a low down payment requirement of only 3.5 %.
VA loans
If you are serving or have served in the armed forces a VA mortgage can work well for low income borrowers. It is one of the only true no down payment loan programs.
USDA loans
If you want to purchase a home out in the suburbs or a rural area a USDA mortgage allows the perfect opportunity to do so.
HomeReady and Home Possible Advantage loans from Freddie Mac
Both HomeReady from Fannie Mae and Home Possible Advantage from Freddie Mac offer home buyers the opportunity to purchase a home with a low down payment.
If you have a qualifying income and meet the program’s requirements, you can buy a house with as little as 3% down.
You are also allowed to borrow money from family and friends to help finance your down payment.
Occasionally, lower income mortgages can attract higher mortgage insurance premiums but that’s not the case here.
If you have only a 3% down payment, you would expect to have to pay around 0.95% in mortgage insurance per year. This is assuming that your credit score is over 720.
These programs discount the rate to as low as .65%. With these programs the seller can pay up to three percent of the low value for closing costs.
Put yourself in better position to buy with a lower income
There are always things you can do to put yourself in a better position to become a homeowner. Three vital things to do include:
- Research low income mortgage options—there are other programs worth looking into for your home loan
- Work on improving your credit score—higher credit scores provide better loan terms which will lower your monthly mortgage payments
- Get a co-signer for your mortgage—by having a co-signer you can take advantage of a borrower with better credit until yours improves
- Keep a strict budget—when you have a low income, you can’t afford to spend money on frills
Final thoughts
Buying a home with low income is not out of the question when you have a solid game plan. Hopefully, these tips for purchasing a home have been useful.
