How To Buy A Home With Low Income But Good Credit!



In most areas of the country, owning a home is a significantly better investment than renting an apartment. If you have a bit of money in savings and can consistently pay your rent on time, you may be ready for homeownership.

For many, however, there is one big hurdle: the down payment.

What if there’s no way you’ll be able to save enough for a down payment in the next five or six years? That’s a challenge for many would-be homeowners. If you’re currently paying high rental payments every month, finding the margin to save for a home is tough.

That’s the bad news. The good news is that many programs exist specifically to help first time and low-income home buyers. The majority of these programs offer down payment assistance of some sort, making it easier to buy a home for many who would otherwise struggle.

If you’re wondering how to buy a house with low income, here are the top programs to consider.

HUD Housing Counselors

The U.S. Department of Housing and Urban Development-certified local housing counseling agencies are a great place to begin.

A housing counselor may charge a small fee. However, he or she can walk you through your federal, state, and local home buying program options and they are a wealth of knowledge. A good housing counselor can help you come up with a housing budget and more.

You can find a counselor in your area through the HUD.

FHA Loans

FHA loans are mortgages backed by the Federal Housing Authority. The FHA guarantees that if you default on the loan, it will pay the bank for its losses.

This encourages banks to lend to people who don’t have excellent credit or a huge down payment. In fact, you can use an FHA loan to finance up to 96.5 percent of a home’s purchase price. With a conventional mortgage, you can generally finance only 80 to 90 percent of a home’s purchase price, depending on lender requirements.

This means you don’t have to save nearly as much for a down payment. On a $200,000 home, you would have to put down $7,000 for an FHA loan, as opposed to $20,000-$40,000 on a conventional loan.

Also, FHA loans don’t require great credit like conventional mortgage loans might. You still need to show a stable job history and prove you’re in a good position to pay the mortgage. But requirements are much less strict, opening up a mortgage possibility for lower-income individuals and families.

The credit requirements vary by lender. But you can often get a mortgage with average to low credit.

Other Government Programs

Two similar programs that can reduce home buying requirements are the Rural Housing Guaranteed/Direct Loan Program and the VA Loan Guaranty Program.

The US Department of Agriculture (USDA) runs the Rural Housing program. It offers both loans made directly through the program and loans guaranteed by the program. It offers loans on single family and multi-family properties. These programs are specifically for low-income individuals who are unable to obtain normal financing.

Most applicants for a direct Rural Housing loan do not pay a down payment. The program keeps mortgage interest rates very low. And you may be able to stretch your financing period to 33-38 years.

This makes for a very low monthly payment for the lowest-income applicants.

The VA program is specifically for veterans. It’s got some incredible benefits, including the option for a no down payment loan. These low interest rate loans don’t require private mortgage insurance, even if you don’t put down a dime. If you get into financial trouble after taking on the loan, the VA also offers payment assistance programs.

For those who qualify, these two programs should be a first line before checking out the FHA programs. This is mainly because FHA loans do require PMI for the life of the loan. This can add significant cost to your loan that it’s best to avoid it possible.

Other Special Programs

The HUD and other organizations also offer a variety of programs for lower-income home buyers. These include:

Good Neighbor Next Door

This program encourages public servants – police officers, teachers, firefighters, and EMTs – to move into areas HUD is trying to revitalize. If you fall into one of these categories and agree to live in a home as your sole residence for three years, the Good Neighbor Next Door Program could knock 50 percent off your home’s list price.

Fannie Mae HomePath

The HomePath program isn’t specifically for low-income home buyers. But it’s a good place to start for first-time buyers.

t’s an online program that breaks down the home-buying process into lessons. The program costs $75, but that gets rolled into your closing costs. And if you complete the program, you can get assistance with those closing costs! 

Fannie Mae Home Ready

This program, another from Fannie Mae, looks similar to an FHA loan. If you qualify, it might even be better.

The program offers up to 97% financing, and it offers cancellable PMI. (Unlike FHA, which requires a refinance to another loan type to get out of PMI.) You can also use the program in tandem with Fannie Mae’s Homestyle renovation loan program.

Freddie Mac’s Home Possible Program

This program from another government-linked lender, Freddie Mac, also offers 3-5% down payment options. It’s specifically for home buyers with low to moderate income who live in typically underserved communities. 

Local Homebuying Programs

Because homeowners are more likely to take care of their properties and care about their neighborhoods, some states, cities, and municipalities have home buying programs of their own.

These programs vary from location to location. They may include features like:

Down payment assistance programs, which may or may not require you to repay the assistance.
Home renovation programs, which can allow you to buy a cheaper fixer-upper to remodel.
First-time home buyer programs, which can require lower down payments and a lower credit score.
Use the HUD’s state directory to find out more about potential programs in your state.


Non-profit programs like AmeriDream and the Nehemiah Program used to be one way to obtain down payment assistance. Unfortunately, changes to the FHA program in 2008 mean that homebuyers can no longer use down payment assistance from non-profits.

Still, though, non-profit organizations may be able to help you on your way to homeownership. Here are some options to be aware of:

Habitat for Humanity

This well-known program is widely misunderstood. Many people think that Habitat for Humanity builds free homes for the homeless. Actually, families who are unable to save for or buy a home can participate in the Habitat program and wind up with a mortgage through Habitat.

Habitat vastly lowers homeownership costs by building homes with donated work – and often with donated materials. The families who are accepted into the program get an interest-free, down-payment-free, closing-cost-free mortgage through Habitat. They are required to pay back the mortgage, usually over 15 years.

I have some friends who are working with Habitat now. They’ve been called poster children for the program. They’re a hard-working couple, but they just don’t make enough to support their family of five while saving for a down payment on a home.

Homeownership will be cheaper for them than renting their current apartment, and they’ll help keep the Habitat for Humanity program going by paying back their mortgage.

If you think you might be a good fit for the Habitat program, talk to a local representative. Be warned: getting a Habitat home takes a lot of work, including a financial management course and tons of volunteer hours, but it might be worth your while.

Other, more local non-profits may offer other assistance to homebuyers — including free counseling, homeownership classes, or help with renovating — if you buy a more-affordable home that needs some TLC. One place to find such nonprofits is to ask around in your neighborhood.

What Counts as “Low-Income?”

One question housing counselors often hear is, “What counts as low income?” If you make a reasonable income and can pay your bills, you may not think you’ll qualify for these programs. But you might be surprised!

For many programs, including many HUD-run programs, income limits are actually based on the area’s median income. Depending on where you live, that could be quite high.

With all that said, the point here is to ask. Some of these programs have very high income limits. Some target first-time home buyers or veterans, regardless of their income. Others are area-specific and have broad qualification requirements.

You never know what you might qualify for until you ask!