The Best Home Loan Programs for Low Income Buyers


Many people are not aware there are several mortgage programs designed to help low-income borrowers.

There are several types of mortgage programs specifically for low-income buyers.

In this article, we take a look at low-income home loan options and how to know if you’re eligible

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Low Income Mortgage Programs

  • USDA Loans provide 100% financing for low-income borrowers buying a home in a qualified rural area.
  • HomeReady and Home Possible require just a 3% down payment and a 620 credit score
  • Freddie Mac HomeReady program is for first-time homebuyers requiring just 3% down
  • VA Loans are for veterans providing 100% financing with no mortgage insurance needed
  • FHA Loans allow up to 50% debt-to-income ratio making them perfect for lower-income individuals
  • Good Neighbor Next Door program is for eligible first responders, teachers, and nurses
  • FHA Section 245a mortgage program for low-income borrowers who expect their income to increase over time
  • Homeownership and Opportunity for Everyone (HOPE) program provides grants to buy section 8 housing.
  • Down Payment Assistance (DPA) programs are available for borrowers who meet the income requirements

 

USDA Loans

USDA mortgage loans are for low-to-median income borrowers buying a home in a USDA-eligible location. They finance 100% of the purchase price and require a minimum credit score of 620. The mortgage insurance premium is half the price of other types of home loans at just 0.35% of the loan amount. To be eligible your income cannot exceed 115% of the area median income (AMI).

  • 620 credit score required
  • Income cannot exceed 115% of the area median income (AMI)
  • 100 financing – no down payment

 

HomeReady Loans

Fannie Mae created the HomeReady loan program specifically for low-income first-time homebuyers. HomeReady loans do have income limits; your income cannot exceed 100% of the area median income (AMI) to be eligible. You can use the income of family members or anyone living in the home with you.

  • Minimum 620 credit score
  • 3% down payment
  • Income limit of 100% of AMI
  • Can include income from all people living in the home

 

Home Possible Loans

The Home Possible Loan program from Freddie Mac is very similar to the HomeReady program. Only first-time homebuyers with income below 80% of the area median income are eligible. A 620 credit score and a 3% down payment are required.

  • 3% down payment
  • 620+ credit score
  • Income limit of 100% of AMI
  • Income from all residences can be used

 

Fannie Mae ReadyBuyer™ Loans

With the ReadyBuyer HomePath mortgage, you can purchase any HUD home on the HUD HomeStore website with just a 3% down payment. HomePath will also give you a 3% credit you can put towards closing costs after attending a mandatory homebuyer education course.

It considers the income of everyone living in the house as part of the qualification process. This helps you by increasing your debt-to-income ratio using everyone in the household without being on the mortgage.

  • 3% down payment
  • 620+ credit score
  • Income limit of 100% of AMI
  • Income from all residences can be used

 

Good Neighbor Next Door Program

The Good Neighbor Next Door program provides homes for 50% off for teachers, firefighters, police officers, and EMT’s. A $100 down payment is all that is required for this first-time buyer program.

  • For qualifying teachers, firefighters, police officers, and EMT’s
  • Minimum 580 credit score
  • 3.5% down payment
  • 50% maximum debt-to-income ratio (DTI ratio)
  • No income limits

 

FHA Loans

FHA loans are a type of government home loan that is guaranteed by the Federal Housing Administration that requires just 3.5% down with a 580 credit score. Borrowers with a 500 or higher credit score may qualify with 10% down. The maximum debt-to-income ratio for FHA loans can be as high as 50% making them a great option for low-income buyers.

  • Minimum 500 credit score with 10% down
  • 3.5% down payment required with a 580 credit score
  • 50% maximum DTI ratio
  • No income limits

 

FHA Section 245(a) Growing-Equity Mortgage

FHA section 245(a) loans, or Graduated Payment Mortgage Program, helps low-income borrowers whose income is expected to increase over time. They have a fixed-rate but the monthly payment starts off low and gradually increases over time.

  • 580 credit score
  • 3.5% down payment
  • 50% maximum DTI ratio

 

VA Loans

A VA loan is a no-money-down mortgage program available to members of the US military and surviving spouses. These loans have no maximum DTI requirements and do not require mortgage insurance. A VA home loan is the cheapest way to become a homeowner as a Veteran.

  • 580-620 credit score
  • 50% maximum debt-to-income ratio
  • No mortgage insurance required
  • No income limit

 

Low-Income Homebuyer Programs and Grants

The following programs and grants are available to low-income borrowers providing closing cost assistance (CCA) and down payment assistance (DPA).

The HOPE Program

The Homeownership and Opportunity for Everyone (HOPE) program by the department of housing and urban development (HUD) provides grants for Section 8 rental vouchers and supportive services to public housing residents and other low-income families. To be eligible your income must be below 50% of the area median income.

Local Homebuyer Programs and Grants

The HUD website has various grants and programs for first-time buyers and low-income families. Local City and County websites sometimes also have first-time homebuyer and down payment assistance programs.

Check out your local county website to check for any low-income housing assistance programs, down-payment assistance, and grants.

The Down Payment Gifts

The good news is that all of these mortgage programs we discussed allow you to use gift funds for the down payment. A friend or relative can gift you 100% of the down payment amount you need for the loan.

The Donor will need to show documentation for where the gift came from and provide a gift letter stating they do not expect to be reimbursed or repaid for the money they are giving.

The Bottom Line

Purchasing your dream home may be more reachable than you think.

There are plenty of low-income home loan programs that help families become homeowners.

If you want to purchase a home but are worried you will not qualify because of your income. No need to fret; there are many options for you.