If you are a low-income earner and wish to apply for a mortgage, the best options for you to try are loan programs that are issued through or backed by a government program. Some such programs include:
If you are living or planning to live in a rural area in the USA, you may qualify for a USDA loan. USDA rural department provides these fixed-rate mortgage loans directly to the borrowers at low interest. You can also get this loan from a USDA-approved lender. You can get this loan at no down payment if you qualify.
You can qualify for a USDA loan, if:
- You are buying a home as a primary residence
- You can prove that you are able to manage your debt
- Your DTI ratio is 41 percent or lower
The amount that you can get depends on the kind of income you earn. This income limit can vary by location and program.
Although not directly provided, an FHA loan is insured by the Federal Housing Administration. You can get an FHA loan from an FHA-approved lender at a down payment as low as 3.5 percent of the purchase price of your home.
You can qualify for an FHA loan if:
- Your credit score is 500 or higher
- You are taking a loan to purchase your primary residence
- Your LTV (loan-to-value) ratio is at least 90 percent
- The home you are purchasing meets the minimum eligibility standards and has been appraised by an FHA-approved appraiser
- You can afford to pay a down payment of at least 3.5 percent of the home price
The maximum limit of FHA loans you can get depends on the type of property you are buying and the cost of living of the locality. Nevertheless, an FHA loan requires you to pay Mortgage Insurance Premium, both as an upfront amount and an annual premium.
Another type of loan you can apply for if you are from the low-income category is an HFA loan. Provided by the state’s HFA (Housing Finance Agency), the guidelines for this program varies from state to state. HFAs buy these loans once the local lenders provide them to the borrowers.
The general qualification requirements of an HFA loan are:
- You have to be buying a home for the first time
- Your personal income should not exceed the specified limit
- You have to meet the minimum credit score requirement
Apart from low or zero down payment and low-interest rates, most HFA programs also offer closing-cost assistance and also mortgage tax credit certificates. Through these certificates, you can claim tax credits worth 20 to 40 percent of the mortgage interest that you pay every year. You can also get down payment assistance.
Fannie Mae and Freddie Mac Loan Products
The mortgage giants Freddie Mac and Fannie Mae also provide certain mortgage products known as HomeReady and Home Possible for low-income homebuyers. You can get one of these for a 3 percent down payment if your income is lower than 80 percent of the median income specified for your area.
If you are a veteran or a military service member, or even a spouse of one of these, you can get a VA loan for no down payment. Get in touch with a few VA loan lenders through VA leads, and find out if you qualify for one.
Apart from the above, you can also check out HUD homes if you have not yet started your house hunting process. The Department of Housing and Urban Development buys foreclosed homes that are bought with FHA loans and auctions at prices below market value. However, these homes might need some serious repairs or updates. Also, it could take a while for these transactions to go through.
The Bottom Line
Buying your dream home is possible even if you are earning a low income. However, you can make yourself an attractive borrower by working on your credit score, saving for your down payment, using a co-signer, and paying off your debts.