Low-Income Homebuyer's Guide

Are you a low-income first-time homebuyer? Or perhaps someone who has purchased a home before but still needs assistance finding a new, affordable home? Good news! Several programs are available, both state and nation-wide, designed to help people just like you find a forever home. Here are a few things that are worth considering.

 

Consider your loan options

The Federal Housing Authority (FHA) is part of the U.S. Department of Housing and Urban Development. They provide mortgage insurance on loans made by FHA-approved lenders, making it easier for people with lower incomes or credit scores to get approved for a loan. However, borrowers need to meet specific requirements to qualify for these loans.

  • 3.5 percent down payment with a credit score of 580 or more or 10 percent down payment with a credit score between 500-579
  • Debt-to-Income Ratio below 43 percent
  • Home must be borrower's primary residence
  • Borrower must have a steady income and proof of employment

FHA loans also require borrowers to pay mortgage insurance for the duration of their loan, which is about 0.5–1.5 percent of your loan amount. However, if your credit score is on the higher end, it’s worth considering conventional loans also. You may still have to pay mortgage insurance on a conventional loan if you make a low down payment, but you can have that mortgage insurance removed once you’ve paid enough towards your home.

 

Homebuyer assistance programs

If you’re a low-income first-time homebuyer, you might qualify for assistance through a grant or program. In fact, not all programs even require you to be a first-time buyer.

 

The Housing Choice Voucher (HCV) homeownership program provides monthly assistance to homeowners to help meet homeownership expenses. However, it doesn’t typically help with down payment costs, although you may qualify for lower closing costs. To participate, you must meet specific income and employment requirements (unless elderly or disabled), be a first-time homeowner and complete the pre-assistance homeownership and housing counseling program required by the Public Housing Agency.

Outside of this nationwide resource, you should also search your state for any local programs. Many states offer programs that help with down payment assistance, cash assistance in the form of a grant, and even student loan forgiveness, in addition to help with financing your first home.

 

If you’re a first-time buyer, consider one of these first-time homebuyer programs or this list of ten first-time homebuyer grants, many of which are dedicated to those with a lower income.

 

Shop smart

Knowing that you have resources on your side, it can also be helpful to get a preapproval letter before house shopping. Doing this shouldn’t affect your credit (be sure to find a lender that doesn’t require a hard credit check). With a preapproval, you’ll know exactly how much home you can afford. And if you can, it might be worth searching for something that stays comfortably under your budget. A more affordable home will generally lead to a lower down payment and allow you to have more money monthly to afford other homeowner expenses.

 

And once you’ve found the right house, don’t be afraid to negotiate the price. It can be challenging to decide how much to offer on a home, but your real estate agent can help. You also have the ability to shop around for different loans to make sure you get the best rate. Although this will eventually result in a hard credit check, you have a 14-45 day window after the first credit check to apply with other lenders without it affecting your score.

 

There’s a lot to learn when trying to buy a home for the first time. You can use this checklist to help guide you. Even if you’re not a first-time home buyer, there are still plenty of low-income homebuyer resources to help you out. Consider exploring all of them or even browsing programs in different states that would make it worth the move.

 

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Published 03.03.2022

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