Buying a home can be more difficult if you have a low yearly income or have trouble saving up the money necessary for a down payment. Luckily, there are multiple loan options and programs designed especially to help low income borrowers qualify for a home loan.
12 Low Income Home Loan Options
Low-income borrowers can find good options for buying a home either through low-income home loans or programs that offer loan or down payment assistance. Here are some loan options commonly accessible to low-income borrowers.
1. FHA Home Loans
The FHA home loan is one of the most common, lower-budget options for homeowners that is accessible to almost any homeowner. With this government-backed loan, borrowers can qualify for a down payment of only 3.5% and low interest rates even if their credit score is less than ideal.
The only limitation to the FHA loan is that the property needs to meet pre-specified living standards, like having a working stove, structural soundness, and running water. If you are hoping to buy a run-down property for a lower price and fix it up, you will have to find one that meets the FHA requirements as determined by HUD.
To qualify for an FHA loan with a 3.5% down payment, borrowers must have a credit score of at least 580. For those with a score between 500 and 579, the FHA loan is available with a 10% down payment. The borrower’s DTI (debt-to-income ratio) must be lower than 43%, and the loan comes with a required MIP (Mortgage Insurance Premium) monthly payment.
2. HomeReady and Home Possible Loans
HomeReady and Home Possible are conventional (non-government backed) loan options offered by Fannie Mae and Freddie Mac, two government-sponsored entities that help support the national housing market. These loans allow low-income buyers to qualify for down payments as low as 3%, but come with specific requirements.
Buyers must meet income limits for their geographic area and must take a course in home-ownership skills, among other requirements.
3. VA Home Loans
The VA home loan is accessible to any retired or active military members. This home loan offers low interest rates and low to no down payment options and comes with more lenient credit score and mortgage insurance options than other loans.
Because the VA loan is government-sponsored like the FHA loan, it also comes with property liveability requirements that must be the borrower's primary residence.
4. USDA Home Loans
The USDA loan is made available by the United States Department of Agriculture and offers low-interest, low-to-no down payment loans for borrowers who are open to living in more rural or undeveloped areas. These areas are pre-determined in every state and include both rural land and suburban neighborhoods. Eligible borrowers must meet income limits and have a DTI below 41% and a credit score of 640 or higher.
5. Good Neighbor Next Door
HUD offers a Good Neighbor Next Door program that offers up to a 50% discount on certain homes to firefighters, police officers, members of law enforcement, paramedics, and teachers. Eligible homes are located in HUD-designated Revitalization Areas, and are pretty limited in numbers. The program is highly competitive, and borrowers will have to meet state guidelines for income eligibility.
6. HFA Home Loans
HFA loans (not to be confused with FHA loans) are offered by state housing authorities in a partnership with Fannie Mae and Freddie Mac. They offer accessible options to low-to-middle income buyers who might have trouble financing with other options. HFA loans vary greatly by state and are only offered by certain lenders. If you’re eligible, you may be able to qualify for as little as 3% down and can apply for down payment assistance in the form of a loan or a grant.
7. Down Payment Assistance
State or local housing authorities are great potential resources for down payment assistance programs. These programs offer loans (which have to be repaid) or grants (which do not need to be repaid) to eligible buyers who meet state guidelines for income, credit score, and DTI ratio. Many programs also have options for forgivable loans, which don’t have to be paid so long as the buyer stays in the home for a set amount of time.
8. Mortgage Credit Certificates
MCCs (Mortgage Credit Certificates) can help eligible homeowners claim federal tax credit to help offset the interest that they’ve paid on a home in a given year. MCCs can be helpful to certain borrowers who had to finance with higher interest rates and who fit certain income limitations. To be eligible, you also must be a first-time homeowner. MCCs allow you to get credit for up to $2,000 paid in interest on a mortgage, but both the IRS and each individual state has its own guidelines for who can qualify.
9. Manufactured and Mobile Homes
Another great option for low-income housing is to consider a manufactured or mobile home. Because these types often come with chattel loans (in which you are buying the house but only renting the land), they cost less money and are easier to finance. You can finance a manufactured or mobile home through conventional, FHA, USDA, and VA loans with a credit score in the mid-600s (although some offer financing for borrowers with scores as low as 580).
10. Special Local and National Programs
In addition to the standard loan options offered nation-wide, you’ll find that your area may offer local programs through state or federal government entities as well.
The U.S. Department of Housing and Development (HUD) provides specialized programs to incentivize homeownership and help low-income buyers across the United States. If your previous home was made unlivable or if you are currently renting your home through public housing, HUD may be able to offer financial assistance and guidance to help you qualify for a loan. You can also find ways to qualify for low-priced homes that have been foreclosed on or abandoned.
12. Habitat for Humanity
Habitat for Humanity is an organization that employs its residents and volunteers to help build and maintain clean, low-income homes. Habitat for Humanity rents out these homes through low-cost, no-profit loans and asks that instead of paying interest, residents do maintenance and repairs on their home and other Habitat for Humanity properties.
Finding the Best Low-Income Home Loan or Program for You
Whether through a government-backed loan option like the FHA or VA loan or through a program providing mortgage assistance or low-income housing, there are options for buyers who are lower income or who have trouble saving for a down payment. While applying and becoming eligible is an intensive process, researching these options can give buyers the opportunity to buy a home in a way that works for their financial situation.
This page last updated: March 21, 2022