Are you looking to buy a home but you’re being held back by your income? Luckily, there are several options for you to make your home buying dream come true. There are plenty of home-buying programs for those with a low income, and you just need to know the right places to look. Remember, your monthly mortgage payment will depend on your monthly income and debts. We’re here to share with you the different types of programs available to you if your income is below-average.
First, it is important to know that there are 3 types of loans available to low-income borrowers: mortgage insurance, direct lending, and grant programs. Mortgage insurance is when the federal government insures the mortgage loan given by a private lender. This makes it easier for a borrower to qualify, even if they are not qualified for a conventional mortgage. Examples of mortgage insurance loans are FHA and VA loans. Direct lending programs are loans the government will give to the borrower directly, without the extra step of going through a private lender. An example of a direct lending program is the USDA rural housing program. Grant programs are grants the homebuyer is given from a government or nonprofit agency.
FHA Loans
The Federal Housing Administration (FHA) insures home loans made by approved lenders. These loans are not just for borrowers with low income, but they are well suited for them. The best part about FHA loans is the lender will get reimbursed by the federal government if you should somehow default on your loan. However, this does not mean this option is a free pass if you are under-qualified. You still need to provide proof that you can afford your mortgage payments every month, just as you would any other type of loan. Your lender will check your income and monthly debts to ensure you can manage all of your monthly payments. You will also be required to pay 3.5% or more of the loan amount.
USDA Loans
If you live in a rural area, you may qualify for a low-income home loan from the United States Department of Agriculture (USDA). The USDA’s housing program is designed for borrowers with low incomes. The government does have specific definitions for what is considered “low-income.” If you meet all of the program requirements, these home loans (also known as Section 502 loans) can be used to purchase, build, renovate, or relocate a home. In these types of loans, Uncle Sam is your lender, as the government makes the loans directly to the borrower instead of just insuring or backing them. In order to qualify for this type of loan, you must have sufficient income to cover payments and currently be without adequate housing. The monthly payments for these loans are typically 22%-26% of the borrower’s income and usually have a term of 30 years. Don’t expect to purchase a high-end home with one of these loans, though, because it is not permitted.
State-sponsored Programs
Many states offer assistance for local buyers. Some are in the form of educational counseling and other times they are as direct financial aid or grants. A good program in Ohio is the Ohio Housing Finance Agency (OHFA), which provides a variety of programs to help first-time homebuyers and others find affordable housing to meet all of their needs. OHFA programs include a first-time homebuyer program, housing development programs, program compliance, and a housing investment fund. For more information, visit OHFA’s website. You can find other state programs by visiting the Department of Housing and Urban Development (HUD) website.
A low income should not stop you from living. We know renting is a costly option, and your needs may be better suited in a home you own. You deserve to have that luxury.