Borrowers who may not qualify for traditional home loans can take advantage of specific programs designed to make homeownership more accessible.
Let’s take a look at some low-income mortgage loans that help borrowers with low incomes or low credit scores buy a home.
ONE+ By Rocket Mortgage®
ONE+ by Rocket Mortgage allows you to get into a home with 1% down (maximum 3% down) while receiving a 2% grant from Rocket Mortgage.1 This allows you to get into a home you can afford even if you don't have tens of thousands suited for a down payment. Here are the basic qualifications:
620 qualifying FICO® Score
Open to those making 80% or less of the median income where they're looking to buy
Primary residences only
Maximum 3% client contribution to down payment
$350,000 maximum loan amount
This can be combined with our BUY+ partnership with Rocket Homes℠.2,3If you use a Rocket Homes Partner Agent, you can receive a lender credit from Rocket Mortgage for up to 1.25% of your loan amount.
VA Loans
Department of Veterans Affairs (VA) loans help eligible low-income borrowers buy a house. Because VA loans are guaranteed by the VA, lenders can offer favorable terms – such as low or no down payments and lower interest rates – to borrowers who struggle to satisfy traditional loan requirements.
VA loans are available to veterans, active-duty service members, National Guard members and reservists who meet minimum service requirements. Certain surviving spouses may also qualify for a VA loan.
VA loans offer a variety of benefits, including lower interest rates, no down payment in most cases and no mortgage insurance. The loan also has more lenient credit and DTI requirements.
FHA Loans
The Federal Housing Administration (FHA) loan is a popular home loan option among available government-backed mortgages.
Who Is Eligible?
FHA loans have more lenient requirements that can help low-income borrowers or borrowers with poor credit histories. They have lower credit score requirements, low down payment requirements, and potentially, low closing costs.
With an FHA loan, you can make a 3.5% down payment on your home purchase with a 580 credit score.
Fannie Mae’s HomeReady® and Freddie Mac’s Home Possible® are two different conventional loan products.
Like government agencies that guarantee government-backed loans, Fannie Mae and Freddie Mac play a similar role with conventional loans (loans that aren’t backed by government agencies).
Low-income borrowers may find it harder to qualify for standard conventional loans, especially if they’re struggling to save for a down payment. HomeReady® and Home Possible® loans allow buyers to finance up to 97% of their home purchase. That means borrowers can make 3% down payments.
Both loans offer a loan level price adjustment (LLPA) credit based on the size of your loan. For loans over $200,000, your credit will equal 1% of the total loan amount up to $3,500. For loans under $200,000, you’ll receive a flat $2,000 credit. For those making up to half the median income where they're looking to buy, there is a $2,500 grant tied to these programs.
Who Is Eligible?
While there are some differences between the programs, they share similar requirements, including that borrowers make no more than 80% of the median income in their area and take a homeownership education course before purchasing a home.
USDA Loans
The United States Department of Agriculture (USDA) runs a loan program that offers mortgages to low- to moderate-income households in rural areas. It’s called the Single Family Housing Guaranteed Loan Program.
Because the USDA backs the mortgages, lenders can offer 100% financing. That means you won’t need to put any money down to buy a home.
Saving for a down payment is a common hurdle for hopeful home buyers, especially buyers with lower incomes. USDA loans can help qualified buyers get into a home they may not have been able to afford otherwise.
Who Is Eligible?
You must live in or purchase a home in an eligible rural area, meet credit requirements (typically a 640 credit score and a DTI below 41%) and meet income requirements.
To meet income eligibility requirements, your combined household income can’t exceed 115% of an area’s median household income. Check out the USDA website to verify location eligibility. You may be surprised to learn that many suburban areas are eligible for USDA financing.
At this time, Rocket Mortgagedoesn’t offer USDA loans.
There's no universal minimum income required for mortgage loans. Your approval depends on the mortgage amount, your debt-to-income ratio, credit score, and other factors.
Some state or local housing agencies may offer down payment assistance as grants or forgivable loans. You should also look into your state's mortgage credit certificate program, which gives lower-income homeowners a tax credit for interest paid on their mortgage.
I make $25K a year; can I buy a house? Yes, if you make $25K a year, you can likely afford around $580 per month for a monthly mortgage payment. With a 6% fixed rate and a 3% down payment, this could buy you a house worth about $100,000. However, consult a mortgage lender for exact numbers tailored to your situation.
Now, Americans must earn roughly $106,500 in order to comfortably afford a typical home, a significant increase from the $59,000 annual household income that put homeownership within reach for families in 2020, according to new research from digital real estate company Zillow.
Your DTI ratio, also known as the “back-end” ratio, is a measure of gross monthly income against monthly debt payments. To calculate your DTI ratio, divide your monthly debt payments by your gross monthly income. While there's no minimum income requirement for a mortgage, there are parameters around the DTI ratio.
Federal Housing Administration (FHA) loans need at least a 580 FICO Score with at least a 3.5% down payment (which amounts to $10,500 on a $300,000 home). Conventional loans require a minimum FICO® Score of 620 along with a 3% down payment (which amounts to $9,000 on a $300,000 home).
In fact, it's possible to get a mortgage without employment as long as lenders are able to determine that you can repay the loan. As long as you're able to provide a potential home mortgage lender with proof that you can to meet your monthly mortgage obligations regularly and on time.
VA loans with no money down usually require a minimum credit score of 580 to 620. Low-down-payment mortgages, including conforming loans and FHA loans, also require FICO scores of 580 to 620.
To afford a $400,000 home, assuming a 20% down payment and a 6.5% interest rate on a 30-year mortgage, you would need a gross monthly income of approximately $7,786.55. This assumes you have $1,000 in monthly debt.
On a salary of $36,000 per year, you can afford a house priced around $100,000-$110,000 with a monthly payment of just over $1,000. This assumes you have no other debts you're paying off, but also that you haven't been able to save much for a down payment.
A good number to shoot for when saving for a house is 25% of the sale price to cover your down payment, closing costs and moving expenses. (This amount is separate from saving up 3–6 months of your typical living expenses in a fully-funded emergency fund—which I recommend you do first, before saving up for a home.)
Some types of mortgages have specific minimum credit score requirements. A conventional loan requires a credit score of at least 620, but it's ideal to have a score of 740 or above, which could allow you to make a lower down payment, get a more attractive interest rate and save on private mortgage insurance.
A $3,500 per month mortgage in the United States, based on our calculations, will put you in an above-average price range in many cities, or let you at least get a foot in the door in high cost of living areas. That price point is $550,000.
No matter how you finance your home purchase, most experts agree that people should not spend more than 28% of their gross income on housing expenses, and no more than 36% on debt. For example, if you earn $5,000 each month, your ideal mortgage payment should be no more than $1,400 per month.
If you have minimal or no existing monthly debt payments, between $103,800 and $236,100 is about how much house you can afford on $40K a year. Exactly how much you spend on a house within that range depends on your financial situation and how much down payment you can afford to invest.
The home price you can afford depends on your specific financial situation—your down payment, existing debts, and mortgage rate all play a role. Most experts recommend spending 25% to 36% of your gross monthly income on housing. For a $70,000 salary, that's a mortgage payment between roughly $1,450 and $2,100.
So, by tripling the $15,600 annual total, you'll find that you'd need to earn at least $46,800 a year to afford the monthly payments on a $200,000 home. This estimate however, does not include the 20 percent down payment you would need: On a $200K home, that's $40,000 that needs to be paid in full, upfront.
Introduction: My name is Jeremiah Abshire, I am a outstanding, kind, clever, hilarious, curious, hilarious, outstanding person who loves writing and wants to share my knowledge and understanding with you.
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