How to buy a house with low income in 2022

Gina Freeman
Gina Freeman
The Mortgage Reports Contributor
February 24, 2022 - 18 min read

Buying a home might be more affordable than you think

When you buy a house with low income, you might face several obstacles.

It’s not easy to save for a down payment while renting. And you might have a harder time keeping your debt-to-income ratio and credit score pristine.

Fortunately, there are private and government-backed programs to help low-income families and individuals achieve homeownership.

Chances are, you qualify for at least one of them.


In this article (Skip to...)


Ten low-income home loan programs

Even with low income, there are many programs and options available to help you buy a home.

Here’s a brief overview of 10 popular loan programs intended to help lower-income renters become homeowners:

  1. HomeReady and Home Possible loans: These mortgages feature low down payment requirements for low-income buyers; just 3% of the home’s purchase price
  2. USDA home loan: Allows you to buy a home with no money down and 100% financing
  3. VA home loan: Specifically for military home buyers, with no minimum credit score or down payment required
  4. FHA home loan: Great for buyers with lower credit scores or higher levels of debt. Easier to qualify for than most other loan options
  5. Good Neighbor Next Door: This unique home buying program offers huge savings for nurses, first responders, teachers, and other public servants
  6. Housing Choice Voucher Program: Also known as Section 8, this option helps both low-income renters and buyers afford adequate housing
  7. HFA home loans: Not to be confused with the FHA program, HFA loans are offered in partnership with state and local housing authorities
  8. Down payment assistance: These local grants or loans provide assistance to home buyers with lower income and/or those in underserved areas. You could get help with your down payment and potentially closing costs
  9. Mortgage Credit Certificates: An MCC can give you a tax credit equal to some percentage of your mortgage interest payments
  10. Manufactured and mobile homes: These are some of the most affordable housing options and can be financed with many mainstream mortgage programs

We’ll cover each of these programs in more detail below, starting with mortgage programs for low-income home buyers.

1. HomeReady and Home Possible mortgages

Fannie Mae’s HomeReady program and Freddie Mac’s Home Possible loan feature low down payment requirements.

You only need a down payment of 3% of the home’s purchase price, and there is no minimum required contribution from the borrower. That means the money can come from a gift, grant, or loan from an acceptable source.

Even better, the home seller is allowed to pay closing costs worth up to 3% of the purchase price. Instead of negotiating a lower sales price, try asking the seller to cover your closing costs.

The PMI on a HomeReady or Home Possible loan is lower than the PMI rate on a standard conventional loan.

Private mortgage insurance (PMI) may also be discounted for these low-income home loans. You’re likely to get a lower PMI rate than borrowers with standard conventional mortgages, which could save you a lot of money month to month.

“This is the biggest benefit,” says Jon Meyer, The Mortgage Reports loan expert and licensed MLO. “The PMI is offered at a lower rate than with a standard conventional loan.”

Finally, Home Possible and HomeReady might make special allowances for applicants with low income.

For instance, Fannie Mae’s HomeReady program lets you add income from a roommate or renter on your mortgage application — even if they’re not on the loan. This can help boost your qualifying income and make it easier to get financing.

You might qualify for HomeReady or Home Possible if your household income is below local income limits and you have a credit score of at least 620.

2. USDA (Rural Housing) mortgages

If you’re not buying within city limits, you may qualify for a USDA home loan. Officially called the Single-Family Housing Guaranteed Loan Program, the USDA loan was created to help low- and moderate-income borrowers buy homes in rural areas.

With a USDA home loan, you can buy a home with no money down. The only catch is that you must buy in a USDA-approved rural area (though these are more widespread than you might think).

Find out if the property you’re buying is located in a USDA eligible rural area and if you meet local income limits using USDA’s eligibility maps.

Your monthly payments might be cheaper, too, because interest rates and mortgage insurance rates are typically lower for USDA loans than for FHA or conforming loans.

There are two types of USDA loans — the Guaranteed Program is for buyers whose household incomes don’t exceed 115% of the Area Median Income (AMI). The Direct Program is for those with incomes between 50% and 80% of the AMI.

Standard USDA-guaranteed loans are available from many mainstream lenders, while the Direct program requires borrowers to work directly with the U.S. Department of Agriculture.

You typically need a credit score of 640 or higher to qualify for the USDA program.

3. VA home loans

The VA mortgage for military home buyers is not restricted to low-income applicants, but it’s helpful for several reasons.

First, there is no minimum credit score under the program (although lenders can add their own minimums if they want to, and many require a FICO score of at least 580-620).

Second, there is no down payment requirement. You can finance 100% of the purchase price.

Third, there is no mortgage insurance. There is a one-time VA Funding Fee, but this can be wrapped into the loan amount.

Finally, VA mortgages allow sellers to pay up to 4% of the purchase price in closing costs. So if you find a motivated seller, you could potentially get into a home with nothing out of pocket.

If you’re a veteran, active-duty service member, or surviving spouse, the VA mortgage program should be your first stop.

Though these loans are guaranteed by the Department of Veterans Affairs, they’re offered by private lenders. So you can easily shop for the best interest rate and lowest fees on your home loan.

4. FHA home loans

FHA loans are specifically intended for lower-income, lower-credit, and/or first-time home buyers.

This program, which is backed by the Federal Housing Administration, makes it easier to become a homeowner by relaxing the standards borrowers must meet to get a mortgage.

Depending on the lender you use, you might be able to get an FHA loan with a debt-to-income ratio up to 45% or a credit score as low as 580.

Select FHA lenders even allow credit scores starting at 500, as long as the buyer can make a 10% down payment.

Thanks to these perks and others, the FHA loan is one of the most popular low-down-payment mortgages on the market.

5. Good Neighbor Next Door

The Good Neighbor Next Door program offers unique benefits for nurses, first responders, and teachers. If you’re eligible, you can buy HUD foreclosure homes at a 50% discount. Use an FHA mortgage, and you only need $100 for a down payment.

You can find the homes on the U.S. Department of Housing and Urban Development website, and you need a licensed real estate agent to put your offer in for you.

If your offer is accepted, and you qualify for financing, you get the home. The 50% discount makes homeownership a lot more affordable. The discount is actually a second mortgage.

This second mortgage, though, has no interest and requires no payments. Live in the home for three years, and the second mortgage is terminated.

6. Housing Choice Voucher Program

The Housing Choice Voucher homeownership program (HCV) provides both rental and home purchase assistance to eligible low-income households.

Also known as Section 8, this loan program allows low-income home buyers to use housing vouchers towards the purchase of their own homes.

Because these voucher programs are run by local public housing agencies, eligibility will vary depending on location. Still, you can generally anticipate needing to meet the following requirements:

  • Specific income and employment conditions
  • Be a first-time home buyer
  • Complete a pre-assistance homeownership and counseling program

Keep in mind that not all states offer voucher programs and that there are limits on how much you can sell the home for later on. To find out if your area does offer a participating program, use the HUD locator web tool.

7. HFA home loans

HFA loans — not to be confused with FHA loans — are offered in partnership with state and local Housing Finance Authorities.

Many HFA loans are in fact conventional mortgages backed by Fannie Mae and Freddie Mac. They may require as little as 3% down, and many HFA programs can be used in tandem with down payment assistance to reduce the upfront cost of home buying.

Borrowers who qualify for an HFA loan might also be in line for discounted mortgage rates and/or mortgage insurance premiums.

To qualify, you’ll typically need a credit score of at least 620. Eligibility requirements vary by program, though. Also, be aware this type of loan program will require additional approval steps that make loan closing take longer.

Find and contact your state’s public housing finance agency or authority to learn more and see if you qualify.

8. Down payment assistance programs (DPA)

Down payment assistance is exactly what it sounds like: help with the down payment and often the closing costs on a home purchase.

DPA programs may be offered by government agencies, nonprofits, and other sources. They usually take the form of a grant or loan (though the loans may be forgiven if you stay in the house 5 years or so).

Most DPA programs are targeted at low-income home buyers, and have guidelines that make it easier to qualify.

Some, however, provide assistance to people who buy in “underserved” or “redevelopment” areas regardless of income.

Many DPA programs offer assistance worth tens of thousands of dollars. Surprisingly, many who qualify for DPA never apply for it — because they don’t know it exists.

9. Mortgage Credit Certificates (MCCs)

Mortgage credit certificates (MCCs) are a homeownership program that allows you to stretch your home-buying power. If you meet income-eligibility guidelines, you could get a tax credit equal to some percentage of your mortgage interest.

Lenders are allowed to add this credit to your qualifying income when they underwrite your mortgage. This allows you to qualify for a higher mortgage amount than you otherwise could.

Mortgage credit certificates are issued by many states, counties, and cities, and their rules and amounts vary widely.

10. Manufactured and mobile homes

Manufactured housing is some of the most affordable around. Homes on approved foundations and taxed as real estate can be financed with many mainstream mortgage programs.

Many programs require slightly higher down payments or more restrictive terms for manufactured homes. Additionally, there are often requirements regarding the year in which the home was built and the property’s foundation. These guidelines will vary between lenders.

HomeReady, for example, increases the minimum down payment from 3% to 5% if you finance a manufactured home.

Mobile homes that are not classified as real estate can be purchased with personal loans like FHA’s Title 2 program. These are not mortgages, because the homes are not considered real estate.

Benefits of low-income mortgage programs

Many of the best mortgage programs are only available to homebuyers with low or moderate income.

These low-income home loans offer one or more benefits, including:

  • Below-market interest rates and mortgage payments
  • Discounts on mortgage insurance
  • Low down payment requirements
  • Down payment and closing cost assistance (grants and loans)

Most of these programs require you to complete some form of approved homebuyer education, especially if you’re a first-timer. And all of them require you to live in the home — no vacation homes or rentals allowed.

Mortgage lenders also offer government-backed programs that are not restricted by income, but their features are helpful for homebuyers who earn less.

Tips for buying a house with low income

Whether you’re buying a new home or your first home, these tips can help you achieve your homeownership goals.

Improve your credit history

Improving your FICO score to either good or excellent is the best way to improve your chances of loan approval and to qualify for lower mortgage rates.

The credit score needed to purchase a home varies depending on the type of loan you’ll apply for. Conventional loans typically require a score of at least 620, while FHA loans often require at least 580.

Start by pulling free credit reports from annualcreditreport.com to determine your current score. Next, consider a few of the common methods to increase credit scores. The amount of work that you’ll need to do will depend on your personal financial situation.

As an example, if your credit score is low because you’re using too much of your available credit, you may benefit from a debt consolidation loan to tame your high-interest account balances and improve your credit utilization.

On the other hand, if your credit history reveals missed payments, you’ll need to show at least 12 months of regular, on-time payments to improve your score.

Save for a down payment

The average first-time home buyer puts down just 6% on a new home. Yet, there are loan programs that require as little as 3% down or no down payment at all.

Keep in mind that you still have to pay closing costs, which are typically around 2-5% of your mortgage loan amount. And if you put less than 20% down you’ll almost certainly have to pay for mortgage insurance.

In addition, you may need cash reserves in your savings account so that your lender knows you can make your monthly mortgage payments if you should suffer a financial setback.

However, don’t let the down payment scare you away from homeownership. Many buyers qualify without even knowing it.

Pay down debts

Paying down debts, especially high-interest credit card debt, will lower your debt-to-income ratio and help your odds of mortgage approval.

Remember, as a general rule of thumb, you’ll qualify for a mortgage with lower rates when you have a low debt-to-income ratio, high credit score, 3%-5% down payment, and stable income for the past two consecutive years.

Use a first-time home buyer program

First-time buyer programs offer flexible guidelines for qualified buyers. Plus, these special programs exist in every state to assist low-income households achieve homeownership.

Unlike traditional conventional loans, first-time buyer mortgages are backed by the government. This allows mortgage lenders to offer financing with better rates and lower credit score requirements than they normally would be able to.

Model your budget

Owning a home is more than qualifying for a loan and making monthly mortgage payments. Home owners are responsible for a variety of ongoing costs including:

  • Homeowners insurance
  • Property taxes
  • Mortgage insurance (in many cases)
  • Utility bills
  • Ongoing home maintenance
  • Home improvements
  • Appliance repair and replacement

Home buyers who are able to create a model budget will be better prepared for the big day when they get the keys to their dream home.

Plus, sticking to this model budget in the months and years before purchasing a home and then saving the money that you would spend on housing costs, such as insurance premiums and utilities, is a great way to build cash reserves and save for a down payment.

Use a co-signer

If you’re on the edge of qualifying for your own loan, using a co-signer may be an option.

Essentially, when you buy a house with a co-signer, both you and your co-signer are both responsible for making the monthly payments. You’ll both also build and share in the home’s equity.

Purchasing a home with a co-signer is quite common between unmarried couples, friends, and family members.

Help only comes to those who ask for it

Now that you know about these homeownership programs, be sure to ask your Realtor, real estate agent, or housing authority about those that might apply to you.

It’s sometimes possible for people to buy a house with low income and pay nothing out of pocket.

Between down payment assistance, concessions from sellers, and other programs like Community Seconds, you could buy a home with very little money saved up, as long as your income and credit fall within the program guidelines.

Low-income mortgage FAQ

How do you buy a house with low income?

To buy a house with low income, you have to know which mortgage program will accept your application. A few popular options include: FHA loans (allow low income and as little as 3.5% down with a 580 credit score); USDA loans (for low-income buyers in rural and suburban areas); VA loans (a zero-down option for veterans and service members); HomeReady or Home Possible (conforming loans for low-income buyers with just 3% down).

I make $25K a year, can I buy a house?

Mortgage experts recommend spending no more than 28 percent of your gross monthly income on a housing payment. So if you make $25K per year, you can likely afford around $580 per month for a house payment. Assuming a fixed interest rate of 3.75 percent and a 10 percent down payment, that might buy you a house worth about $100,000. But that’s only a rough estimate. Talk with a mortgage lender to get exact numbers for your situation.

How do I qualify for a low-income mortgage?

Whether or not you qualify for a low-income mortgage depends on the program. For example, you might qualify for an FHA mortgage with just 3.5% down and a 580 credit score. Or, if your house is in a qualified area and you’re below local income caps, you might be able to get a zero-down USDA mortgage. Veterans can qualify for a low-income mortgage using a VA loan. Or, you can apply for the mortgage with a co-borrower and qualify based on combined incomes.

What programs are available for first-time home buyers?

Specialized mortgage programs can help first-time home buyers overcome hurdles like low credit or income, smaller down payments, or high levels of debt. A few good programs for first-time home buyers include Freddie Mac’s Home Possible mortgage; Fannie Mae’s HomeReady mortgage; the Conventional 97 mortgage; and government-backed loans like FHA, USDA, and VA. First-time home buyers can also apply for down payment assistance grants through their state or local housing department.

Can the government help me buy a house?

There are a number of ways the government can help you buy a house. Perhaps the most direct way to get help is by applying for down payment assistance — which is a grant or low-interest loan to help you make a down payment. You can also buy a house using a government-backed mortgage, like FHA or USDA. With these programs, the government essentially insures the loan, so you can buy with a lower income, credit score, or down payment than you could otherwise.

How do I buy a house without proof of income?

You can no longer buy a house without proof of income. You have to prove you can pay the loan back somehow. But there are modern alternatives to stated income loans. For instance, you can show “proof of income” through bank statements, assets, or retirement accounts instead of W2 tax forms (the traditional method). Many people who want to buy a house without proof of income these days find a bank statement loan to be a good option.

How do you rent to own?

A lease option or “rent-to-own home” isn’t exactly what it sounds like. You don’t simply rent until the house is paid off. Instead, you usually pay higher rent for a set time. That excess rent then goes toward a down payment when you buy the house at a later date. Rent-to-own might help you buy a house if you don’t have a lot of cash on hand right now. However, rent-to-own requires seller cooperation and comes with unique risks.

Can I rent to own with no down payment?

Rent-to-own does not mean you can buy a house with no down payment. When you rent-to-own, you’re paying extra rent each month that will go toward your down payment later on. And usually, rent-to-own contracts include an “option fee” that’s a lot like a down payment. The option fee is smaller — think 1% of the purchase price instead of 3-20% — and it eventually goes toward your purchase. But it’s still a few thousand dollars you must pay upfront to secure the right to buy the home later on.

Can I get a grant to buy a house?

Yes, you can get a grant to buy a house. Or at least, you can apply for a grant to buy a house. These are called “down payment assistance” grants. They won’t pay for the whole house, but they can help cover your down payment to make a mortgage more affordable. You’re most likely to qualify for a grant to buy a house if you have low to moderate income and live in a “target area.”

What are today’s mortgage rates for low-income homebuyers?

Good news: many low-income mortgage programs have lower interest rates than ‘standard’ mortgage loans. So you could stand to get a great deal.

However, even government-backed loan rates are not set by the government. You have to get quotes from several lenders and then choose your best deal.


Popular Articles

The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.