Affiliate links for the products on this page are from partners that compensate us (see our advertiser disclosure with our list of partners for more details). However, our opinions are our own. See how we rate mortgages to write unbiased product reviews.
- There's no minimum income you need to buy a home, but your debt-to-income ratio can limit how large of a mortgage you'll be approved for.
- Low-income borrowers should look for mortgages that allow low or no down payments.
- Your state's housing finance agency might have programs specifically geared toward low-income homebuyers.
Over the past couple of years, homeownership has become increasingly unaffordable. Home prices increased nearly 30% from 2020 to the end of 2023, and mortgage rates are now nearing 7%. As both prices and rates continue to rise, many hopeful buyers are wondering: Can I actually afford to buy a home on my income?
While there's no formal income limit required to buy a home, mortgage lenders typically limit the amount of debt you can take on relative to your income. Because of this, low-income individuals often struggle to qualify for a mortgage.
"When it comes to real estate, low-income homebuyers face a number of challenges," says Boyd Rudy, owner of MiReloTeam. "Not only do they often have difficulty securing financing, but they also may have limited resources for making a down payment and covering other associated costs."
While it can be challenging, there are a variety of home loans and other programs specifically geared toward low-income individuals that offer lower costs, better rates, and things like down-payment assistance that can make homeownership more affordable for those who qualify.
Understanding your financial situation
Knowing what you have to work with is the first step toward buying a house — no matter what your income may be.
Assessing your income and expenses
To start, look at your income in relation to your expenses. Are you covering everything comfortably? Do you have room to spend more on your mortgage payment than you're currently paying on rent, or do you need to stick around the same range?
You should also take this time to assess your expenses. Are there any items you can cut back on? This can give you more wiggle room as you approach your home purchase.
Setting a realistic budget
Once you have an idea of your income and costs, you can set your homebuying budget. The easiest way to do this is using a mortgage calculator. Play around with the numbers until you get a monthly payment you're comfortable with. You can check Freddie Mac for a good idea of where current mortgage rates stand.
Exploring homebuyer assistance programs
Fortunately, if you're on a limited income, there are still options for buying a home — and without breaking the bank. These include both federal and state homebuyer assistance programs, as well as other options. See below for assistance you might qualify for:
Federal programs
There are plenty of federal programs that can help you get into a home more affordably. These include:
HUD homes
The US Department of Housing and Urban Development sells FHA-foreclosed homes on its HUD Homes website. To buy one of these homes, you'll need to work with a HUD-approved real estate broker, who will submit a bid on your behalf.
HUD Homes are listed at low prices, but they're sold as is. This means that the seller won't make any repairs prior to the sale. So if a home is in need of a lot of repairs, you could end up spending more in the long run than if you'd purchased a move-in-ready home on the regular market.
Good Neighbor Next Door program
The Good Neighbor Next Door program helps law enforcement officers, teachers, firefighters, and emergency medical technicians purchase a HUD Home at a 50% discount in eligible "revitalization areas."
However, not all HUD Homes are eligible for the Good Neighbor Next Door program, and inventory is usually extremely limited.
Section 8 homeownership voucher program
The Section 8 housing choice voucher program provides rental assistance to very low-income households. If you're a Section 8 participant, you may be eligible for its homeownership program.
With this program, you can use your housing choice voucher to purchase a home and receive monthly assistance. You can only participate in this program if your local public housing agency offers it, and not all agencies do.
State and local programs
To get help on a local level, you can reach out to your city or county's housing agency. You can find your local public housing agency using HUD's search tool. HUD can also help you find information specific to your state.
If you want to learn more about the programs available to you as a low-income homebuyer, you can also reach out to your state's housing finance agency. Here's where you can find help in every state, according to the National Council of State Housing Agencies.
Mortgage credit certificates are another option. These are programs run by state and local housing finance agencies that allow qualifying homebuyers to get a tax credit on the interest they pay on their mortgage and reduce their tax bill by up to $2,000 per year.
Non-profit and community programs
You can also check with local non-profit and community groups in your area. These often offer housing help, like closing cost or down payment assistance. Some may also have grant or low-cost loan programs that can give you a leg up.
Mortgage options for low-income buyers
As you research your different mortgage options, look for ones that allow low down payments and are geared toward low-income borrowers.
"Fortunately, there are a number of mortgage and assistance programs available that can help low-income homebuyers navigate the homebuying process," Rudy says.
FHA loans
Mortgages insured by the Federal Housing Administration are often a good fit for low-income borrowers because they allow low down payments, have less stringent requirements, and come with lower rates than conventional mortgages.
"One of the best mortgage programs for low-income borrowers is an FHA loan," says Bill Gassett, realtor and founder of Maximum Real Estate Exposure. "The program puts a significant amount of people into a home who would otherwise not qualify."
FHA loans require a down payment of 3.5% and a credit score of at least 580, though you can potentially be approved with a lower score if you can make a larger down payment.
An FHA 203(k) loan might be a good fit for you if you're looking at homes that are priced lower but need some repairs. These loans let you purchase a home and finance improvements to it, all in a single mortgage.
USDA loans
Low-income individuals who live in rural or suburban areas can apply for a USDA loan, which is a mortgage guaranteed by the Department of Agriculture. With one of these mortgages, you can put zero down without having to pay mortgage insurance. You'll typically need a credit score of at least 640 to qualify.
If you're very low income and currently don't have "decent, safe, and sanitary housing," you might be eligible for a direct USDA loan. With direct USDA loans, the USDA is the lender.
VA loans
If you're a service member, veteran, or surviving spouse, you may be eligible for a VA loan. These mortgages are guaranteed by the U.S. Department of Veterans Affairs. It allows 0% down payments with no mortgage insurance. VA loans also typically have lower rates than conventional loans.
To qualify, you'll need to meet minimum service requirements. Many lenders also require a credit score of at least 660, though some will allow scores of 620 or even 580.
Conventional loans with low down payment options
Conventional loans are mortgages that aren't backed by a government agency. Many of these mortgages are backed by either Fannie Mae or Freddie Mac, which allow down payments as low as 3%.
Some lenders may also have their own specialty mortgage options that allow low down payments and come with special benefits for low-income or first-time homebuyers. Alliant Credit Union, for example, has a 0% down option for first-time homebuyers that doesn't require private mortgage insurance, while Chase offers grants that can be used toward your down payment.
Saving for a down payment with low income
The down payment can be a big hurdle when you're buying a home on a tight budget. Unless you qualify for a USDA or VA loan, you'll need at least 3% to buy a house (or more, if you need an FHA loan). These low-income homebuying tips can help you get it.
Tips for saving on a tight budget
Start saving for your down payment early — as soon as you set your sights on a home purchase. Commit to saving a portion of each paycheck to savings, or opt for a budgeting app that rounds up — rounding your purchases up to the nearest dollar and depositing that extra change right into a savings account.
Make sure you're using a high-yield savings account, too. The difference in interest earnings in these can be substantial.
Finally, save any windfalls you may come across throughout the year — things like tax returns or holiday bonuses, for instance. These can make a big dent in your savings goals.
Down payment assistance programs
Many different entities offer down payment assistance in the form of loans or grants. Check with your city, county, and state's housing authorities to see if they offer this assistance to low-income or first-time homebuyers. Some nonprofits may offer help as well.
Pay attention to the type of assistance offered. Grants don't need to be paid back, but loans often do. Some loans, however, may be forgivable if you remain in the home for a certain amount of time.
Improving your credit score for home buying
Your credit score will impact what loans you can qualify for and how much they cost you. If your credit score is low, consider boosting it before buying a house on a tight budget. To do this, you should:
Understand credit requirements
Qualifying for a mortgage is a balancing act between your credit, debts, income, and down payment. If you have a low income, working on other factors in your application can help compensate for that.
The main hurdle for low-income borrowers is likely going to be their debt-to-income (DTI) ratio. Your DTI ratio calculates the percentage of your income that you spend on debt. If you earn $4,000 each month and your monthly mortgage payment is $2,000, you have a DTI of 50%.
Generally, your DTI will need to be 50% or less, but it can vary depending on the loan type and lender. Your DTI limits how much house you can afford, which can make home shopping challenging for low-income folks. If your DTI only allows you to borrow up to $150,000 and the average home price in your area is significantly higher than that, you might have a hard time finding a home in your price range.
Lenders will also look at your credit score and how much you have for your down payment and closing costs.
For conventional mortgages, you'll usually need a score of at least 620. FHA mortgages require a score of 580. The higher your score, the more likely you are to be approved. Higher scores also help you to get more attractive interest rates.
You'll need to put at least 3% down for a conventional mortgage and 3.5% down for an FHA mortgage. If you can put down more, you might have an easier time getting approved with a low income. Just don't forget to factor in closing costs, which typically equal 3% to 6% of the loan amount.
Take steps to improve your credit
Improving your credit is one of the best things you can do — both to qualify for a mortgage and to get a lower interest rate.
To do this, you can:
- Pay down your debts.
- Dispute errors on your credit report.
- Pay your bills on time.
- Reduce your credit utilization rate.
- Keep your old accounts open, even after paying them off.
Sign up for a credit-monitoring service so you can keep track of your progress. (Your bank might also offer this for free).
Finding affordable homes
Once you're ready to pull the trigger, it's time to start the home search. This can be challenging when working on a budget, but there are some ways to ease the process. Here's how to find affordable homes for low-income buyers:
Work with a real estate agent
A real estate agent can help point you toward more affordable areas and properties. They can also negotiate on your behalf once you find a home you like.
In most cases, agent commissions are paid by the seller.
Research affordable neighborhoods
Knowing what areas are in budget (and aren't) can help you hone your home search. Check sites like Zillow, Redfin, and Realtor.com to get an idea of what homes cost in your city, and filter results by price range to determine the best areas to zero in on. Then, work with your agent to mine listings in these communities.
Consider foreclosures and fixer-uppers
While move-in ready homes are nice, they also come with a price premium. If you're looking to save cash, buying a previously foreclosed-on home or a fixer-upper may be the way to do it. You can even use a loan like a FHA 203(k) to roll the cost of repairs into your loan balance.
Homebuying on a low income FAQs
Federal, state, local, and non-profit programs offer low-income homebuyers assistance with down payments, closing costs, and favorable loan terms.
Yes, there are various mortgage options for those with a low income, such as FHA, USDA, VA, and conventional loans with low down payment options designed for low-income buyers.
To save for a down payment with a low income, create a budget, reduce unnecessary expenses, and explore down payment assistance programs for low-income homebuyers.
Credit score requirements vary by lender and loan product, but improving your credit score can help secure better loan terms and options.
Yes, FHA, USDA, and VA loans are specifically designed to help low-income buyers afford homeownership.
Reference
