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Margaret Kapranos
Berkshire Hathaway HomeServices Drysdale Properties

Mortgage Options for Low-Income Homebuyers

Buying a house is challenging for many people. If your annual earnings are low, it may be difficult or impossible to save a substantial amount of money for a down payment. If you have existing loans or credit cards, your debt-to-income ratio may be too high to qualify for most mortgages. Fortunately, there are several programs that might be able to help you achieve your dream of owning a home.

Federal Programs to Help Low-Income Borrowers
A loan through the Federal Housing Administration requires just 3.5 percent down. The down payment can be made with funds received as a gift. FHA has lower credit score requirements and less stringent rules on debt-to-income ratio than conventional lenders. The borrower can have a co-signer and the seller can pay some or all of the closing costs.

Both Fannie Mae’s HomeReady program and Freddie Mac’s Home Possible Advantage program require just 3 percent down. The borrower doesn’t have to personally contribute any money toward a down payment; it can come from a grant, loan or gift. In addition, the seller can pay up to 3 percent of the purchase price in closing costs and the borrower can qualify for a discount on mortgage insurance. 

The Department of Agriculture has a home loan program to help low-to-moderate income borrowers purchase houses in designated rural areas. The USDA offers two programs for borrowers with different income levels. No down payment is required.

The Department of Veterans Affairs offers loans that can be particularly beneficial to low-income borrowers since there is no down payment or mortgage insurance required. The program doesn’t have a minimum credit score, but lenders can set their own minimums. The VA has more lenient rules on debt-to-income ratio than conventional lenders. The seller can pay up to 4 percent of the purchase price to cover the buyer’s closing costs. 

The Good Neighbor Next Door Program lets teachers, law enforcement officers, firefighters and emergency medical technicians buy Department of Housing and Urban Development foreclosure properties at half-price. The discount is a second mortgage that doesn’t require any payment, as long as the borrower lives in the house for at least three years.

Other Forms of Assistance
Some city, county and state housing finance agencies issue mortgage credit certificates. Borrowers who meet income guidelines can receive a tax credit equal to a percentage of the mortgage interest. That credit can be added to qualifying income, which allows a lender to approve a higher mortgage amount than the borrower would have otherwise been able to obtain.

Some government agencies, employers and charitable organizations offer down payment assistance through grants or loans. Programs may have income limits, or they may help borrowers buy homes in “underserved” or “redevelopment” areas, no matter their income. 

Ask If You’re Eligible 
Several programs are designed specifically for people who have low incomes and want to buy a home. If you need help, research these programs to find out if you’re eligible or ask your real estate agent for guidance.