7 Best Home Loans for Low-Income Borrowers of 2024

If you’re living on a limited income, it’s easy to assume that homeownership just isn’t in the cards for you. After all, it’s challenging to save up a 20% down payment on a home when you’re working with a limited budget.

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And if you struggle with poor credit or have a high debt-to-income ratio, buying a house can feel even more out of reach. Fortunately, many home loan programs are available to help borrowers just like you.

This article will review five home loan programs that specialize in helping low-income borrowers reach their goal of homeownership. Chances are, at least one of them will be a good fit for your situation.

7 Low-Income Home Loans You Can Consider

If you want to buy a house but are concerned that you don’t make enough money, you have options. Listed below are five low-income home loans you can consider.

1. FHA Loans

FHA loans are a viable option for low-income borrowers because they have relaxed credit requirements and low down payment options. The mortgage is backed by the Federal Housing Administration (FHA), so it’s easier to qualify for than a traditional mortgage.

If your credit score is at least 580 or higher, you can qualify for a mortgage with a 3.5% down payment. If your credit score is between 500-579, you’ll need to put down a 10% down payment.

The good news is that your down payment can come from savings or financial assistance gifted from a family member. The loan will be set at a fixed rate of 15 or 30 years.

However, FHA loans cannot be used to purchase a rental property. The home you’re buying must be your primary place of residence.

Eligibility Requirements:

  • FICO score between 500-579 with a 10% down payment.
  • FICO score of 580 or higher with a 3.5% down payment.
  • The home must be appraised by an FHA-approved appraiser.
  • The home must be your primary place of residence.
  • Borrowers must occupy the property within 60 days of closing on the loan.

2. VA Loans

VA loans, offered by the Department of Veterans Affairs (VA), are designed to help military members and veterans find affordable housing. You may also qualify for a VA loan if you’re the surviving spouse of a veteran who died during service or from a service-related disability.

You’ll apply for the loan through a bank or credit union, and the VA backs the loan. VA loans are one of the most affordable loan programs available because there is no required down payment, and you don’t have to purchase private mortgage insurance (PMI).

There are also no stated credit requirements, but individual lenders can set their own standards. Most mortgage lenders look for a credit score of at least 620 or higher.

Eligibility Requirements:

  • Active duty military members that served at least 90 continuous days.
  • Veterans that served 90 continuous days in active wartime or 181 days in peacetime.
  • Veterans that completed six years in the National Guard.
  • The surviving spouse of a veteran who died while in service or from a service-related disability.

3. USDA Loans

USDA loans are an excellent option for low-income borrowers looking to purchase a home in a rural or suburban area. The program is similar to FHA and VA loans in that the USDA guarantees the loan.

If you qualify for a USDA loan, you can purchase a home in a rural or suburban area with no down payment. And the interest rates tend to be much lower than conventional home loan programs.

However, these loans are designed specifically for low to moderate-income borrowers. To qualify, your income cannot exceed 115% of the median income for that area. And the house you purchase must be located in an area deemed eligible by the USDA.

Eligibility Requirements:

  • Must be a U.S. citizen, non-citizen national or Qualified Alien.
  • Home must be located in an eligible rural or suburban area.
  • Income cannot be more than 115% of the median income for that area.

4. 97 LTV Purchase Program

FHA loans are a great option, but they can come with hefty fees, and you have to purchase private mortgage insurance (PMI). If you’re looking for an alternative to taking out an FHA loan, you might consider the 97 loan-to-value (LTV) purchase program.

The 97 LTV program allows borrowers to purchase a home with a 3% down payment. The rates are typically low, and there are many lenders available that offer this program.

If you have a credit score of at least 620 or higher, you may be a good candidate for the 97 LTV purchase program. And according to Fannie Mae’s regulation, the down payment can be gifted to you from a family member.

Eligibility Requirements:

  • You’re purchasing a one-unit single-family home, condo, co-op, or PUD.
  • The property must be your primary residence.
  • If there are multiple borrowers, at least one of them hasn’t owned a home in the past three years.
  • The total loan amount is less than $510,400.

5. HomeReady and Home Possible Mortgages

Fannie Mae’s HomeReady and Freddie Mac’s Home Possible programs are designed to cater to lower-income home buyers. Both programs require a mere 3% down payment and do not mandate a minimum borrower contribution. This allows for the down payment to be sourced from a gift, a grant, or a loan from an approved source.

What sets these programs apart is the possibility of having the home seller cover up to 3% of the purchase price in closing costs. This feature could alleviate the burden of upfront costs without needing to negotiate a lower sales price.

Another significant advantage is the potential for reduced PMI rates. Borrowers under these programs often receive lower PMI rates compared to those with standard conventional loans, leading to substantial monthly savings.

The HomeReady and Home Possible programs also consider special circumstances for low-income applicants. Notably, HomeReady allows inclusion of a renter’s income in your mortgage application if they’ve resided with you for at least a year. This can enhance your qualifying income, making financing more accessible.

Eligibility Requirements:

  • Household income that falls below the local income limits.
  • Credit score of at least 620.
  • The home must serve as your primary place of residence.
  • The down payment can be sourced from a gift, grant, or loan from an acceptable source.
  • Home sellers can cover up to 3% of the purchase price in closing costs.
  • Under the HomeReady program, income from renters living with you for at least a year can be included in the mortgage application.

6. HUD Homes

HUD homes refer to properties owned by the U.S. Department of Housing and Urban Development (HUD). These homes become available for purchase when a homeowner defaults on their mortgage backed by the Federal Housing Administration (FHA). These properties present an affordable homeownership opportunity, particularly for lower-income buyers.

Purchasing a HUD home involves bidding in an online auction, with preference initially given to owner-occupant buyers. After a specific period, if no successful bid from an owner-occupant is placed, the property becomes available to all potential buyers, including investors.

A unique advantage of buying a HUD home is that you may qualify for certain special programs. For instance, the $100 Down Payment Program allows a buyer to purchase a HUD home with just a $100 down payment, provided they secure financing through the FHA.

However, HUD homes are sold as-is, meaning any repair or improvement costs fall on the buyer. It’s essential to get a home inspection before finalizing your purchase to understand the property’s condition.

Eligibility Requirements:

  • HUD homes must be appraised by an FHA-approved appraiser.
  • The home must serve as your primary place of residence.
  • Bidding on the home takes place in an online auction, with priority given to owner-occupant buyers.
  • Certain special programs are available, such as the $100 Down Payment Program (with FHA financing) and the Good Neighbor Next Door Program.
  • HUD homes are sold as-is, so buyers should get a home inspection to understand any potential repair costs.

7. Good Neighbor Next Door Program

If you work in a certain type of profession, you may be eligible for the Good Neighbor Next Door Program. This is another program offered by HUD.

The Good Neighbor Program encourages citizens to revitalize their community through homeownership. To qualify, you must work in public service and purchase a home in a HUD revitalization area.

You also must be willing to live in the home for at least three years after purchasing it. Participants are required to certify that they’re still living in the house every year.

The benefit of the Good Neighbor Next Door Program is that participants receive hefty discounts on the sale of their home. And you can use a conventional, FHA, or VA loan to finance the purchase.

Eligibility Requirements:

  • To qualify, you must be either a full-time teacher, emergency medical technician, law enforcement officer, or firefighter.
  • You must qualify for an FHA loan, VA loan, or conventional mortgage.
  • You must be willing to purchase a home in a HUD revitalization area.
  • You’re willing to make an offer on the home through the HUD Homestore within a week of its posting.
  • Must be willing to live in the home for at least three years after purchasing it.
  • Must certify that you’re still living in the home on an annual basis.

11 Tips for Buying a House with Low Income

Here are ten viable strategies for buying a home when you’re working with a lower income.

1. Partner with a Knowledgeable Real Estate Agent

A knowledgeable real estate agent can help steer you through this process, simplifying complexities and identifying opportunities you might overlook. They can guide you towards homes within your budget, help you understand various loan programs and down payment assistance options, and even negotiate better loan terms. Their expertise and guidance can ultimately lead you to the home ownership path best suited for your circumstances.

2. Embrace Low- or No-Down-Payment Loans

There are loan options designed with you in mind. Look into conforming loans that require a minimal 3% down payment or explore government-backed loans like FHA, VA, or USDA loans. The latter are especially tailored for low- to moderate-income borrowers and offer attractive terms such as low down payments and flexible credit requirements.

3. Buy a Less Expensive Home

One of the most straightforward methods to make homeownership more attainable is to lower your price range. Consider purchasing a smaller house, an older house, or a house in a less expensive neighborhood. These options can substantially reduce the cost of your mortgage and make your dream of homeownership more feasible.

4. Take advantage of Down Payment Assistance Programs

Did you know that every state offers grant and loan programs to assist lower-income borrowers with their down payment? These programs often go unnoticed but could provide the essential help you need to make your dream home a reality. This cash infusion can significantly lower the initial costs and make the process more manageable.

5. Consider a Co-Signer

Enlisting the help of a co-signer — perhaps a family member with strong credit and income — can significantly increase your chances of loan approval. By co-signing, they’re pledging to back your mortgage loan if you can’t make the monthly payments, thereby reducing the risk for the lender.

6. Strengthen Your Credit

Your credit score is a key influencer when it comes to qualifying for loans and securing lower mortgage rates. It’s worth taking time to review your credit report and rectify any discrepancies that may be impacting your score negatively. As well, making timely payments, reducing debts, and avoiding new credit obligations can help boost your creditworthiness.

7. Save for a Larger Down Payment

While this might take time, saving for a larger down payment can help in two ways: it can lower your monthly mortgage payment and make you a more attractive candidate to lenders.

8. Decrease Your Debt-to-Income Ratio

Your debt-to-income ratio (DTI) is a significant factor that lenders consider. It’s the percentage of your monthly income that goes toward paying off debts. Lowering your DTI—by either increasing your income or reducing your debt—can improve your chances of qualifying for a low-income mortgage.

9. Seek a Cash Gift

If you’re fortunate to have a generous friend or family member, consider asking for a monetary gift. The funds can be used to offset your down payment or closing costs. Keep in mind, however, there might be specific requirements or limitations when using gifted money in this manner, so it’s important to understand the rules set by your lender or loan program.

10. Apply for a Housing Voucher

The Department of Housing and Urban Development (HUD) offers a Housing Choice Voucher Program, commonly known as Section 8. If you’re eligible, this program can assist with monthly homeownership expenses, making it a valuable resource for low-income home buyers.

11. Find a Rent-to-Own Option

Opting for a rent-to-own agreement can be a smart path to homeownership for low-income buyers. In these deals, you lease a home with an option to buy it before the lease ends. A portion of your rent payment goes towards the home’s purchase price, allowing you to build equity over time.

The purchase price is often set at the lease’s start, which can be beneficial if home values rise. However, these contracts can be complex, so understanding all terms, like the final purchase price and amount of rent going towards it, is crucial.

Bottom Line

It can be challenging to buy a home as a low-income borrower, but it’s not impossible. The previous five programs make it possible for low-income borrowers to purchase the home that’s right for them.

Even if you don’t think you’ll qualify, there is no harm in looking into each of these options to see if you can get approved for a mortgage.

Make sure you consider all of your options and look for the lender that offers you the best rates. If you’re not sure where to start, you can try contacting a qualified loan officer. They can evaluate your financial situation and help you determine which program is the best fit for you.

Jamie Johnson
Meet the author

Jamie Johnson is a freelance writer who has been featured in publications like InvestorPlace and GOBankingRates. She writes about various personal finance topics including student loans, credit cards, investing, building credit, and more.