Contrary to popular belief, buying a home isn’t something exclusively reserved for those with high incomes anymore. Thanks to several programs from the government, home buying is now possible for low-income applicants.
Let’s look at some of these programs now so you can make the move of buying a home soon.
1. USDA Home Loan
Buying a house within city limits can be quite expensive, and this can create a daunting obstacle to homeownership. If you’re willing to look in rural areas, you may be able to qualify for a USDA home loan.
What’s the most significant benefit of using such a loan? The fact that you can buy a home without the need for a down payment. Yes, that’s right, you can become a homeowner via 100 percent financing from a USDA loan, even if you have no money saved.
USDA loans fall into two main categories:
- Direct Program – If your income sits between 50-80 percent of the Area Median Income.
- Guaranteed Program – If your income goes up to 115 percent of the Area Median Income.
2. FHA Loan
If you don’t have ideal credit, are living on a small income, or are a first-time homebuyer, an FHA loan may be what you need to purchase a house.
The Federal Housing Administration backs this popular low-income loan program, which is intended to make home buying easier by relaxing the requirements necessary to secure a mortgage.
For example, you may be able to get an FHA loan with a 580 credit score or a high debt-to-income ratio of 45 percent. If you can make a 10 percent down payment, you may even be able to purchase a home with a 500 credit score.
3. HomeReady/Home Possible Advantage Loans
This pair of low-income loans feature small down payments. If you can come up with a three percent down payment, you may qualify for a HomeReady loan from Fannie Mae or a Home Possible Advantage loan from Freddie Mac.
While having to put down three percent may seem like a lot, if your income isn’t ideal, it doesn’t necessarily have to come from your pocket. That three percent can come from outside sources, such as a loan from someone else, a gift, or a grant.
Beyond small down payments, HomeReady and Home Possible Advantage loans also offer lower mortgage insurance.
As an example, let’s say you had a solid 720 credit score. Under a standard mortgage, your insurance would be .95 percent per year. Under these two special loan programs, that number drops to as little as 0.65 per year.
The savings don’t stop there, though, as closing costs can be paid by the home seller, up to three percent of the purchase price. Try negotiating this to ensure your closing costs are included, and you’ll be able to keep even more money in your pocket.