Buying A House With Low Income: Loan Options, Tips And More

Wondering if you earn enough to qualify for a mortgage and purchase a home? You aren’t alone.

While home buyers share common challenges when purchasing a home, trying to buy a house with a low income can present even more challenges. Fortunately, borrowers have a variety of loan options and programs available to help make homeownership more attainable for would-be homeowners with lower wages.

Learn everything you need to know about buying a house with low income.

Though there’s no minimum income requirement for buying a home, it can still be tricky for low- to moderate-income buyers to get approved for a mortgage and purchase a home.

Besides meeting loan and lender requirements for credit and debt-to-income ratio (DTI), buying a home involves a lot of costs, such as a mortgage down payment. However, certain loan types or programs can put homeownership within your reach. 

Borrowers who may not qualify for traditional home loans can take advantage of specific programs designed to make homeownership more accessible.

Let’s take a look at some low-income mortgage loans that help borrowers with low incomes or low credit scores buy a home.

VA Loans

Department of Veterans Affairs (VA) loans help eligible low-income borrowers buy a house. Because VA loans are guaranteed by the VA, lenders can offer favorable terms – such as low or no down payments and lower interest rates – to borrowers who struggle to satisfy traditional loan requirements.

Who Is Eligible?

VA loans are available to veterans, active-duty service members, National Guard members and reservists who meet minimum service requirements. Certain surviving spouses may also qualify for a VA loan.

VA loans offer a variety of benefits, including lower interest rates, no down payment in most cases and no mortgage insurance. The loan also has more lenient credit and DTI requirements.

FHA Loans

The Federal Housing Administration (FHA) loan is a popular home loan option among available government-backed mortgages.

Who Is Eligible?

FHA loans have more lenient requirements that can help low-income borrowers or borrowers with poor credit histories. They have lower credit score requirements, low down payment requirements, and potentially, low closing costs.

With an FHA loan, you can make a 3.5% down payment on your home purchase with a 580 credit score.

HomeReady And Home Possible Loans

Fannie Mae’s HomeReady and Freddie Mac’s Home Possible are two different conventional loan products.

Like government agencies that guarantee government-backed loans, Fannie Mae and Freddie Mac play a similar role with conventional loans (loans that aren’t backed by government agencies).

Low-income borrowers may find it harder to qualify for standard conventional loans, especially if they’re struggling to save for a down payment. HomeReady and Home Possible loans allow buyers to finance up to 97% of their home purchase. That means borrowers can make 3% down payments.

Both loans offer a loan level price adjustment (LLPA) credit based on the size of your loan. For loans over $200,000, your credit will equal 1% of the total loan amount up to $3,500. For loans under $200,000, you’ll receive a flat $2,000 credit.

Who Is Eligible?

While there are some differences between the programs, they share similar requirements, including that borrowers make no more than 80% of the median income in their area and take a homeownership education course before purchasing a home.

USDA Loans

The United States Department of Agriculture (USDA) runs a loan program that offers mortgages to low- to moderate-income households in rural areas. It’s called the Single Family Housing Guaranteed Loan Program.

Because the USDA backs the mortgages, lenders can offer 100% financing. That means you won’t need to put any money down to buy a home.

Saving for a down payment is a common hurdle for hopeful home buyers, especially buyers with lower incomes. USDA loans can help qualified buyers get into a home they may not have been able to afford otherwise.

Who Is Eligible?

You must live in or purchase a home in an eligible rural area, meet credit requirements (typically a 640 credit score and a DTI below 41%) and meet income requirements.

To meet income eligibility requirements, your combined household income can’t exceed 115% of an area’s median household income. Check out the USDA website to verify location eligibility. You may be surprised to learn that many suburban areas are eligible for USDA financing.

At this time, Rocket Mortgage^® doesn’t offer USDA loans.

Low-income borrowers can take advantage of specific mortgages geared toward helping them buy a house and home buyer assistance programs that help make homeownership more affordable.

HUD Homes

When a home purchased with an FHA mortgage goes into foreclosure, the Department of Housing and Urban Development (HUD) auctions it as a HUD home to try to recoup some of its losses.

How It Works

HUD homes are typically sold below market value, making them an attractive option for buyers with less buying power. However, HUD homes are sold “as is,” which means no repairs will be made before the sale.

If you purchase a HUD home that needs lots of repairs and updates, you risk spending more money than if you were to buy a home on the market. If you want a HUD home, get a home inspection and consider whether you can afford any repairs the property may need.

You can find HUD homes for sale in your state on the HUD Homestore website.

Homeownership Voucher Program

The Housing Choice Voucher program – sometimes referred to as Section 8 – provides rental assistance to very low-income families. The program also offers the Housing Choice Voucher homeownership program, which allows families to use their vouchers to purchase and own homes.

How It Works

Housing voucher programs are administered by local public housing agencies. However, not all local agencies offer the homeownership option as part of their program. If you’re interested in using your housing voucher to pursue homeownership, check with your area public housing agency.

You’ll need to meet the requirements set by your public housing agency, including income requirements. If you aren’t an older adult or have a disability, you must meet employment requirements. You must also be a first-time home buyer and complete a homeownership counseling program.

Good Neighbor Next Door

Good Neighbor Next Door is a HUD program that helps law enforcement officers, teachers, firefighters and emergency medical technicians purchase a home by offering a 50% discount on the list price of eligible HUD homes in HUD-designated revitalized areas.

However, inventory tends to be very limited. At the time of publishing, only a few states had homes available. Browse through listings on the HUD Homestore site to see what’s available.

How It Works

If you find a home you’re interested in, you’ll need to meet the program's requirements for your profession and agree to live in the home for at least 3 years.

State Or Local Assistance

If you could use some assistance buying a home, check out what assistance programs your state or local government offers hopeful homeowners. Local charities or nonprofits may also provide homeownership assistance.

Some state or local housing agencies may offer down payment assistance as grants or forgivable loans.

You should also look into your state’s mortgage credit certificate program, which gives lower-income homeowners a tax credit for interest paid on their mortgage.

Here are some steps you can take to work toward your homeownership goals:

Work On Your Credit Score

A good or excellent credit score can help boost your mortgage approval odds. If your credit score can use some work, you can improve it by making on-time payments, paying down debt and keeping your credit utilization (the amount of credit you use compared to your total credit limit) as low as possible.

The credit score you’ll need to buy a house will depend on the type of loan you get. Conventional loans typically require a score of at least 620, while FHA loans often require at least 580.

Increasing your credit score can help you save money on your mortgage. Borrowers with higher scores tend to receive better interest rate offers.

Outline A Budget

Knowing exactly how much you can afford to spend each month on housing will help you avoid taking on a larger mortgage than you can comfortably handle.

When planning out your budget, factor in additional costs you may have as a homeowner that you don’t have now. Repairs and regular maintenance can quickly add up. Include those potential costs in your monthly homeownership budget as well.

Save For A Down Payment And Closing Costs

Unless you qualify for a no-money-down mortgage, you’ll need to figure out how much you need to save for your down payment.

If you qualify for a loan with a low down payment requirement, you may only need to put down 3.5% or 3%. On a $200,000 home, a 3.5% down payment would be $7,000, and a 3% down payment would be $6,000.

You’ll also need to save 3% – 6% of your total loan amount to cover your closing costs. A lender may also require that you have a certain amount of money in your savings as reserves, reassuring them that you’ll be able to cover your mortgage payments if there’s an emergency or a change with your source of income.

Determine how much you’ll need for all your home buying costs – then plan how you’ll save for it.

Use A Co-Signer

In some cases, you can have someone co-sign your mortgage loan. A lender will evaluate a co-signer’s financial and credit information in addition to yours to determine whether to approve your mortgage application.

You and your co-signer should understand that they’re on the hook for the monthly mortgage payments if you can no longer make them. Talk with your co-signer about expectations and what you’ll do if you think you won’t be able to meet your mortgage obligation.

Consider First-Time Home Buyer Programs

If you’re a first-time home buyer, there are national, state and local programs to help you afford a home. Read up on programs, loans and grants that focus primarily or exclusively on first-time buyers.

Pay Off Debt

If you can decrease the total amount of debt you owe, you’ll lower your DTI, which can help your mortgage approval odds and boost your buying power.

Debt payoff advice is easier said than done for many buyers – but it’s worth the attempt. You may need to consider consolidating all your debt into one lower-interest loan and using the money you save on interest each month to make extra payments and pay off more of your debt.

If you’re still wondering what steps you’ll need to take to buy a house with low income, let’s take a closer look at the process.

1. Research Your Loan And Assistance Options

Before you apply for a mortgage, look at all your options. That means picking a home loan you’re confident will be the best fit and checking to see if you qualify for assistance programs. We listed some popular options up top, but there may be other options exclusively available to low-income home buyers in your area.

Do your due diligence at the beginning of the home buying process to make the best decisions for your situation.

2. Get Your Finances In The Best Shape Possible

Next, get your finances in the best possible shape, which can include following the tips we’ve offered, like paying off debt, improving your credit score and saving for a down payment.

To boost your chances of approval, be sure you meet a lender’s DTI ratio and credit score requirements before you apply for a low-income mortgage.

3. Find A Lender And Get Your Preapproval

Once you’ve gotten your finances into good shape and have a good idea of your loan and assistance options, it’s time to choose a lender and get a mortgage preapproval. The lender will ask you to submit documents, like tax returns and W-2s, to help them estimate a loan amount for approval.

Don’t be afraid to shop around and compare lenders. Choose the lender that offers the best loan terms for you.

4. Find A House And Submit An Offer

After preapproval, you’re ready to find a house. Consider working with a knowledgeable real estate agent who can help you find and view properties that meet your needs in your budget range.

When you’ve found one you like, your REALTOR^® can help you prepare and submit an offer.

5. Get An Appraisal And Go Through Underwriting

Once a seller accepts your offer, your lender will start underwriting your loan. They’ll verify your income, debts, credits and the value of the property before issuing loan approval. During this process, the lender has the property appraised to establish its value and confirm you’re not borrowing more than the home is worth.

You should also get a home inspection during this time to learn what condition the property is in.

6. Close On Your Home

Traditionally, the last step on the homeownership journey is to close on your home. You’ll need to bring money to the closing to cover your down payment and closing costs. You’ll sign some documents and finally receive the keys to your new home.

Just because you aren’t a high earner doesn’t mean you can’t become a homeowner. As you prepare for homeownership, explore all available loan options – and read up on how the home buying process works.

Ready to begin? You can start your mortgage application online with Rocket Mortgage. You can also give us a call at (833) 326-6018.

¹ Client will be required to pay a 1% down payment, with the ability to pay a maximum of 3%, and Rocket Mortgage will cover an additional 2% of the client’s purchase price as a down payment, or $2,000. Maximum grant amount is $7,000. Offer valid on primary residence, conventional loan products only. Maximum loan amount of $350,000. Cost of mortgage insurance premium passed through to client effective January 2, 2024. Offer valid only for home buyers when qualifying income is less than or equal to 80% area median income based on county where property is located. Not available with any other discounts or promotions and cannot be retroactively applied to previously closed loans or loans that have a locked rate. This is not a commitment to lend. Rocket Mortgage reserves the right to cancel/modify this offer at any time. Additional restrictions/conditions may apply.