Best Best Low Income Home Loan Options • Benzinga

How much money do you need to buy a home? While this is a question many potential home buyers ask themselves, the unfortunate truth is that there is no set dollar amount you need to earn to buy a home. If you’re living on a limited budget and you assume that you don’t earn enough to qualify for a mortgage loan, read on — you might be surprised to learn about how many options are available for buyers with lower income. 

The Best Low-Income Home Loan Options

Government-backed mortgage loans were developed to help buyers with modest incomes purchase their first homes. Government-backed mortgage loans come with insurance from a branch of the federal government, which makes them less risky for lenders. The following government-backed mortgages and additional loan products can help you buy a home without earning triple your monthly mortgage payment. 

FHA Loans

FHA loans are backed by insurance from the Federal Housing Administration. These loans were created to help buyers with less substantial credit history or past credit mistakes buy a home. The FHA lending program does not set a minimum income level you must meet to qualify for a loan, which means you can potentially get approved with less money coming in. However, you will need to meet the following criteria:

  • A FICO credit score of at least 580
  • Proof of steady, consistent and ongoing income using a W-2 or other tax document
  • A down payment of at least 3.5% of the purchase price of your new home
  • A debt-to-income ratio (DTI) of 50% or less
  • Buying a home that’s in livable condition at the time you move in
  • Using the home as your primary residence

Some FHA lenders also allow you to buy a home with an FHA loan and a credit score as low as 500. However, if your score is less than 580, you will need at least 10% down to close on your loan. 

Fannie Mae HomeReady Loans

Fannie Mae is a federal mortgage agency that launched the HomeReady program in 2015 to provide lower-income buyers with a more flexible option to finance their first home. The HomeReady program makes it easier to get a home loan when you have a lower income because the loan application allows you to add nonborrowing co-inhabitants to the loan. By adding co-borrowers who live in your home to your loan application, the HomeReady plan gives you a more flexible way to qualify if you have a lower income on your own, but you live with others who contribute to household expenses.

To qualify for a mortgage loan through the HomeReady program, you must meet the following criteria:

  • Have a debt-to-income ratio of no more than 50%
  • Be moving into the home you’re buying as a primary residence
  • Complete a four- to six-hour online homeownership course
  • Have a credit score of at least 620 points

The HomeReady program was designed for buyers with lower income levels. You cannot earn more than 80% of your Census tract’s median income. Verify that your income qualifies you for a loan based on your location using the Census’s calculator before you apply. Simply click on your county to view the maximum income you can earn and still be eligible for a HomeReady loan.

USDA Loans

If you’re looking to buy a home in a rural area, you may want to consider applying for a USDA loan. USDA loans have insurance from the United States Department of Agriculture and can be used to buy a home in a suburban or rural part of the country. Use the USDA’s evaluation map to determine whether the home you want to buy is in a qualifying area. If it is, you could qualify for a mortgage with $0 down.

To qualify for a USDA loan, you must meet the following criteria:

  • The home you’re buying must be in livable condition, meaning it must have functional utilities, water and a sound structure.
  • Your household income must fall within USDA limitations for your area
  • A credit score of 640 or higher (though the exact requirement may vary by lender)
  • A DTI ratio of 43% or less

How to Prepare for a Low-Income Mortgage

As you can see, there are plenty of options you can use to buy a home if you have a lower income. However, it’s important to remember that low-income buyers are still considered by lenders to be higher-risk candidates for mortgage loans. Take the following steps to prepare for your mortgage application to maximize your chance of success. 

  • Improve your credit score: While it’s possible to qualify for a mortgage using an FHA loan with a score as low as 500, you’ll usually need a credit score of at least 580 to buy a home. Before you apply for a home loan, check your FICO credit score to sure it’s up to snuff. If your score is lower than what you need, work on building credit by making at least the minimum payment on all your accounts before you apply. You can also work to reduce your balances and avoid adding extra charges to your credit accounts as you prepare to apply for a mortgage.
  • Check your credit report: If you always make your payments on-schedule and your score is still low, you may want to pull your credit report. Your credit report lists both negative and positive credit items that are contributing to your score, so you’ll see exactly which factors are coming into play that are presenting your score from climbing. If you notice an item you don’t recognize, dispute it with the agency issuing the report. By law, if the credit agency cannot produce proof of the errant item, it must remove it from your credit report.
  • Save more for a down payment: When you have a lower income, it can be more difficult to save money for a down payment. Taking some time to assess your current savings plan and locating areas where you can put more money away can help you find an easier approval. You might also want to consider researching options like USDA and VA loans, which allow you to buy a home with $0 down. Bringing a larger down payment makes you a less risky candidate for a loan, which means that you can enjoy an easier qualification by paying for a larger percentage of your home upfront. 

How Long Does it Take to Close on a Mortgage?

As a general rule, you can expect a mortgage loan to take between 30 and 50 days to close. While this might seem like a long time, remember that this figure includes the entire closing timeline from the date you submit an offer to buy the home you’re looking at to the date you get your keys. The longest part of the mortgage loan process is usually underwriting, which takes between one and two weeks to complete.

You can steps take to speed up the mortgage process. Remain as proactive and responsive as possible during the application process, and be sure to respond to questions and document requests as quickly as possible. Double-check your loan application before you submit to make sure that all information is correct to reduce wait time during underwriting. 

Compare Mortgage Lenders

If you’re in the early stages of building a new career or you will have a lower income for the foreseeable future, you may still qualify for a mortgage loan. Benzinga offers insights and reviews on the following mortgage lending services. Consider beginning your search for the right low-income home loan using a few of the links in the table below. 

Frequently Asked Questions

Questions & Answers

Q

What is a low-income borrower?

A

A low-income borrower is a loan applicant who has a household income level that falls below the 80% median income threshold for the area where the home is located. Being a low-income borrower does not necessarily exclude you from qualifying for a mortgage loan, especially if you don’t have other debts beyond your housing payment. 

Q

What is the lowest income to qualify for a mortgage?

A

There is no true minimum income to qualify for a mortgage. Instead of looking solely at the dollar amount of money you earn, lenders consider your income in relation to the amount of debt you have and the price of the home you want to buy. If you’re concerned about how your income level will impact your home purchase, you can divert a portion of your income to paying down debt before applying to improve your chances of qualifying. 

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