Trying to get a mortgage as a low-income homebuyer raises a number of obstacles.
Saving for a down payment can become almost impossible, while many banks and lenders will outright refuse to discuss options with you.
However, there are a number of unique plans available for individuals and couples with low incomes to help get them into home ownership. In this article, we’ll take a look at these plans and assess some key points to be cautious of.
What Options Are Available?
Let’s take a look at some of the options available for low-income buyers across the United States.
Low Income Home Loans
Fortunately for low-income buyers, many of the best government mortgage programs are reserved for them
Whatever financial situation is holding you back during the negotiation process, there is a solution in the form of these loans.
These loans for people in low-income roles include benefits such as:
- Discounts on mortgage insurance
- Low down payment requirements
- Grants for down payments
- Below-market interest rates
While many first-timers will be required to complete approved homebuyer education, this is a brilliant way of getting yourself started and solving particular money concerns. It’s important to note these programs only exist for buyers looking to purchase a home they plan to live in. They do not apply to purchases of rentals and vacation properties.
VA home loans
Many loan models are established with the aim of assisting people with particular backgrounds, rather than all low-income buyers.
VA mortgages are just that, offering support for all military homebuyers, including veterans.
This program features no minimum credit score, no down payment requirement (100% of the purchase can be financed) and no mortgage insurance.
Furthermore, VA mortgages allow sellers to pay up to 4% of the purchase price in closing costs.
This is a brilliant option for those who are just leaving active service or are long retired from the armed forces. By collaborating with providers like VA Claim Pros (who focus on acquiring healthcare benefits), military buyers can access a collection of benefits around both housing and medical support to finance their home owning dreams and achieve financial security.
Good Neighbor Next Door
Much like VA mortgages, Good Neighbor Next Door plans are developed to help kickstart the buying process for people in particular career fields.
In this case, the program offers unique benefits for nurses, teachers, first responders and other community roles.
If eligible, buyers can access foreclosure homes at a 50% discount or use an FHA mortgage, only requiring a $100 down payment.
If your offer for a foreclosure home is accepted and you qualify for financing you will automatically be accepted. This discount will turn into a second mortgage which features no interest and no payments, and is terminated after three years of living in the property.
USDA/Rural Housing Mortgages
Looking for a home outside of the city limits?
Low-income rural buyers might just qualify for a USDA home loan, which is designed to bolster communities in rural areas.
If successful, you’ll gain access to a loan with no down payment and 100% financing.
There are two types of USDA loans:
- The Guaranteed Program (for individuals who don’t exceed 115% of the Area Median Income
- The Direct Program (designed for those with incomes between 50 and 80% of the Area Median Income
FHA home loans
SCCU FHA loans were developed with low-income, low-credit and first-time buyers in mind.
The Federal Housing Administration backed program makes becoming a homeowner much easier by relaxing the standards borrowers are required to meet to get a mortgage.
Select lenders will provide you with a mortgage even with a low credit score (such as those starting at 500) and debt-to-income ratios of up to 45%, just as long as the buyer can afford the 10% down payment. This makes home ownership significantly more accessible to low-income buyers and those with unusually large debt.
Mortgage Credit Certificates (MCCs)
For low-income buyers who are just barely unable to qualify for traditional mortgages, mortgage credit certificates come as a lifeline.
They allow you to stretch your home-buying ability. If eligible, you can acquire a tax credit equal to a percentage of your mortgage interest. Lenders can then add this credit to your qualifying income when underwriting your mortgage, allowing you to qualify for higher mortgage outcomes than you otherwise normally would.
However, rules around these certificates vary widely from state to state, and may not be eligible in your county.
What to be Wary Of?
To conclude, let’s take a look at what you should be wary of when it comes to acquiring a mortgage in a low-income role.
Be Careful of Rent-To-Own
“Rent-to-own” doesn’t exactly promise what the name suggests.
It’s not a case of simply renting a property until it’s paid off, then it’s yours. Instead, you usually pay a higher amount of rent for a set period. That excess rent becomes a down payment when you eventually buy the house at a later date.
While this is an option for some, it does not offer escape from the renting cycle and comes with its own unique risks.
Never Commit To Something You Can’t Afford
While many of these solutions include no interest payments and 100% financing, others will include hidden payments. If you can’t afford these payments, don’t risk your future on a house that’ll come back to bite you.
Ensure you’re always aware of all the costs you’re signing up for, and never commit to a home you can’t afford, even if you’re anticipating an income increase.
Be Aware Of Your Credit Score
Your credit score is one of the main factors in determining whether or not you can get a mortgage and how much you can borrow.
If you’re not aware of your credit score, we suggest taking the time to check how healthy it looks and following some simple steps to improve your score such as:
- Closing old accounts
- Paying bills for utilities and credit cards on time
- Checking for fraudulent activity
There are, of course, other methods of financing a home purchase as a low-income buyer, including opting to buy a manufactured home. These are just some of the most popular examples.
As always, do your research on these programs to see whether or not you’re eligible. It will save you significant time and money, and allow you to make the right decision regarding your future home.
We hope you found this blog post How to Get A Mortgage As a Low-Income Buyer useful. Be sure to check out our post Tips for Relocating After a Financial Setback for more great tips!
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