How to Buy a House with Low- to Moderate-Income
What You'll Learn: Resources to help low- to moderate-income buyers navigate the mortgage process.
EXPECTED READ TIME: 8 MINUTES
Many buyers worry that their income may be holding them back from qualifying for a mortgage or affording the down payment. The good news is, there are a variety of loan options and mortgage assistance programs that were created to make homeownership possible for some low- to moderate-income borrowers.
Remember, every lender has their own requirements a borrower must meet to qualify for a mortgage. You can consult with a trusted lender to discover if you’re eligible and learn which types of mortgages may be best for you.
Mortgage assistance programs
Two potential hurdles some buyers face are saving for a down payment and closing costs. Luckily, there are a number of mortgage programs that can provide borrowers with assistance to ease some of the financial strain that comes with a home purchase. You just need to know what to research and where to find them!
HUD Homes
Sometimes homes that have been purchased with an FHA mortgage are foreclosed on. In these cases, the U.S. Department of Housing and Urban development (HUD) will auction off the homes. HUD homes are often normally sold below market value, making them a great option for borrowers who don’t have a lot of buying power or the ability to outbid competing offers. However, there are household income requirements to be eligible to apply.
Keep in mind, HUD homes are sold as is and you could end up paying for significant repairs. If you find a HUD home you’re interested in, it’s essential to get a home inspection. That way, you’ll understand the potential repair costs prior to closing and whether you can afford them.
The HUD home store website has the properties available in your state listed.
Homeownership Voucher Program
The Housing Choice Voucher program (HCV) is the federal government’s major program for providing housing assistance. To be eligible, your family must fall below the threshold household income based on the limit for your area. Housing choice vouchers allow low-income families to choose and lease or purchase safe, decent, and affordable privately-owned rental housing through the HVC homeownership program. These vouchers are administered by your local public housing agency.
This option is only available to borrowers who have been admitted to the HCV program and it is not offered by every local public housing agency.
Good Neighbor Next Door
If you’re a law enforcement officer, teacher, firefighter, or emergency medical tech, HUD offers a substantial incentive in the form of a discount of 50% from the list price of the home. In return, an eligible buyer must commit to live in the property for 36 months as his/her principal residence. Houses that are eligible for the discount can be found on the HUD homes list, though inventory is typically very low. Be sure to browse through the HUD homes store for the most up-to-date available listings.
The program also has specific profession qualifications a borrower must meet in order to be eligible.
State and county assistance
If you need some extra help affording a home purchase, it’s also worth researching what aid your state and local government offers to aspiring homeowners. Down payment assistance may be available in the form of grants. You may also be able to find support through charities or nonprofits in the area.
Other home loan options
Aside from mortgage assistance, there are also mortgage options designed to help make homeownership attainable for borrowers who may not qualify for typical conventional mortgages. These home loan options include:
- FHA mortgage loans — FHA loans are a popular government-backed mortgage option with more lenient requirements, including a down payment as little as 3.5%, making them an appealing option. These loans are guaranteed by the Federal Housing Administration but are only available from FHA-approved lenders. Like all mortgage options, FHA loans also come with inevitable costs. Minimum credit scores and other requirements also vary depending on the lender.
- VA loans — Another government-backed mortgage options are VA loans — although you must be a veteran, military member, or spouse to qualify. Backed by the Department of Veteran Affairs, VA-approved lenders can offer better terms and interest rates. Plus, instead of a down payment, you only have to pay a one-time VA funding fee.
- USDA mortgages — This loan program is run by the U.S. Department of Agriculture (USDA) and is also known as the Single-Family Housing Guaranteed Loan Program. Participating lenders can offer 100% financing, so you won’t be required to put any money down if you’re eligible. You can find the list of borrower requirements on the USDA website.
- HomeReadyⓇ loans — This conventional loan product is offered and backed by Fannie Mae, making them a non-government backed loan. Unlike your typically conventional mortgage, HomeReadyⓇ loans allow borrowers to finance up to 97% of a home purchase. That means you’ll only need as little as a 3% down payment.
Buying tips for low- to moderate-income buyers
As you research different loan options and available mortgage payment assistance programs, there are a few strategies you can utilize to help you work toward your homeownership aspirations:
- Improve your credit score — The better your credit, the more likely you are to qualify for a mortgage with better terms and a lower interest rate.
- Create a budget — Using a mortgage calculator, you can get a good estimate of potential homebuying costs and create a budget to help you start saving up toward your goal.
- Save up for a down payment — The sooner you can start saving money for a down payment, the better. This option works best for homebuyers who are not in a big rush to move into a new home.
- Pay off any current, outstanding debts — Not only will paying off debt help you reduce your monthly expenses, it will also set you up with a better debt-to-income (DTI) ratio.
Can you buy a house with low- to moderate-income?
The simple answer is yes, there are options in the market that make homeownership more affordable. However, purchasing a home is a huge financial commitment, especially if you are working with a tighter budget.
It’s important to take stock of your current finances, debts, and bills. Mortgage application fees, the down payment, and closing costs will add up quickly. Even after you have the keys to your new home in hand, you’ll be dealing with a monthly mortgage payment, interest, and the costs associated with maintaining your new property.
Take the time to start saving and thoroughly research the low- to moderate-income homebuying programs you think you are eligible for. If you have questions, don’t hesitate to reach out to a trusted lender who can help you better understand which mortgage options are right for you.