Buying a house with low income: Loan options, tips, and step-by-step guide

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.

Can you buy a house with low income?

Though there is 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.

Buying a home involves many costs, such as a mortgage down payment, as well as meeting loan and lender requirements for credit and debt-to-income ratio (DTI). However, certain loan types or programs can make homeownership affordable.

Low-income home loans

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 loans that help borrowers with low incomes or low credit scores buy a home.

FHA loans

The Federal Housing Administration (FHA) loan is a popular home loan option among available government-backed mortgages. With an FHA loan, you can make a 3.5% down payment on your home purchase with a credit score of 580.

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

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.

VA loans offer various 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.

Eligibility requirements:  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.

One+ by Rocket Mortgage^®

One+ by Rocket Mortgage allows you to get into a home with 1% down (maximum 3% down) while receiving a 2% grant from Rocket Mortgage. This allows you to get a home you can afford even if you don't have tens of thousands of dollars for a down payment.

Eligibility requirements: This loan requires a credit score of 620, a median income of 80% or less in the area they’re looking to buy, and usage on primary residences only. The loan has a maximum amount of $350,000 and involves a maximum 3% client contribution to the down payment.

This can be combined with our BUY+ partnership with Rocket Homes℠. If you use a Rocket Homes Partner Agent, you can receive a lender credit from Rocket Mortgage for up to 1.25% of your loan amount.

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.

Low-income borrowers often face challenges qualifying for standard conventional loans, particularly if saving for a down payment is difficult. HomeReady and Home Possible loans offer one possible solution, allowing you to finance up to 97% of your home’s purchase price—requiring just a 3% down payment.

Eligibility requirements: Both loans require a minimum credit score of 620. HomeReady requires that someone attend homeownership education courses and not own any other property in the country. Home Possible is only available for those with an income of no more than 80% of the median income of the area they’re looking for a home in and those with a loan-to ratio of 80% to 105%.

Special offers to make homeownership more affordable

Certain lenders may also offer special offers to make buying a house easier for those with low incomes. For example, Rocket Mortgage has a couple of special offers you can choose from.

The first is Welcome Home RateBreak, which reduces your interest rate by 2% the first year, and 1% the second. It works like this: In the first year of your loan, your interest rate will be 2% lower than your standard rate. In the second year, your rate will be 1% lower than the standard rate. Starting in the third year, your rate adjusts to the permanent rate for the rest of the loan term.

The other option is the BorrowSmart Access upfront credit program, which could help you save $3,000 on your upfront home-buying costs. Both these offers are designed to make homeownership more accessible by reducing upfront costs and easing financial strain in the early years of your mortgage.

Eligibility requirements: While the programs differ slightly, they share similar eligibility 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 the Single Family Housing Guaranteed Loan Program, which offers mortgages to low—to moderate-income households in rural areas. 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.

Eligibility requirements: 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. 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 home buying programs

Low-income borrowers can take advantage of specific mortgages designed to help them buy a house and home buyer assistance programs that make homeownership more affordable. Additionally, if you’re a first-time home buyer, there are national, state and local programs to help you afford a home.

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 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. Check with your area public housing agency if you want to use your housing voucher to pursue homeownership.

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

Some state or local housing agencies may offer down payment assistance as grants or forgivable loans. Local charities or nonprofits may also provide assistance with homeownership. 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.

5 tips for buying a house with low income

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

1. 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.

2. Outline a budget

Knowing 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 creating your budget, account for potential homeowner expenses like repairs and maintenance, which can quickly add up.

3. 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.

4. 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 responsible 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.

5. 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 debt.

How to buy a house with low income: A step-by-step guide

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

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.

Your real estate agent can help you prepare and submit an offer when you've found one that suits your needs and budget.

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.

The bottom line: There is help available if you are a low-income borrower

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 call us 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.

² The following offers are available only to clients who are purchasing a home and financing with Rocket Mortgage: (1) Client purchasing with a Rocket Homes Partner Agent through Rocket Homes will receive a lender paid credit that is 1.25% of their loan amount. For example, a $200,000 home purchase price minus a 5% down payment of $10,000 results in a loan amount of $190,000. Client would receive a credit of 1.25% of the $190,000, for a credit of $2,375 toward closing costs. (2) Client is referred by a real estate agent to buy a new home will receive a lender paid credit that is 0.50% of their loan amount. Offer does not apply to new loans submitted through an Executive Loan Officer, mortgage broker, through Schwab, or on nonagency jumbo loans, non-QM loans, bank statement loans, second lien products or team member loans. Offer may not be redeemed for cash and is nontransferable. Offer cannot be retroactively applied to loans where the rate has been locked. Conditions and exclusions apply. This is not a commitment to lend and is contingent on qualification per full underwriting guidelines.

³ Rocket Homes^® is a registered trademark licensed to Rocket Homes Real Estate LLC. The Rocket Homes^SM Logo is a service mark licensed to Rocket Homes Real Estate LLC. Rocket Homes Real Estate LLC fully supports the principles of the Fair Housing Act. For Rocket Homes Real Estate LLC license numbers, visit Rocket.com/Homes/license-numbers. California DRE #01804478. Hawaii License # RB-23371. TREC: Information about brokerage services, Consumer protection notice.

⁴ The 2-1 temporary buydown offer is funded by Rocket Mortgage. Clients will receive an effective rate reduction of 2% below the note rate in the first year and 1% below the note rate in the second year. Offer only valid on HomeReady® or Home Possible® loans. Maximum loan amount of $350,000. Buydown funds may not be redeemed for cash or credit and are nontransferable. This offer cannot be retroactively applied to any loans in process or closed loans. Offer is subject to changes or cancellation at any time at the sole discretion of Rocket Mortgage. Additional restrictions/conditions may apply. This is not a commitment to lend.