How to buy a house with low income in 2017

  • Mortgage loan
  • 23/08/2017
How to buy a house with low income in 2017
Gina Pogol writes about personal finance, credit, mortgages and real estate. She loves helping consumers understand complex and intimidating topics. She can be reached on Twitter at @GinaPogol .

There are several obstacles when you buy a house with low income. It's not easyto save a down payment while renting. It can be tougher to keep your bills paid on time and your credit report pristine. In addition, lower income makes it harder to keep your debt-to-income ratio (DTI) low enough to qualify for a home loan.

But people do it all the time. Here's how.

There are several mortgage programs that are only available to homebuyers with low or moderate income. These loans offer one or more benefits, including:

Most of these programs require you to complete some form of approved homebuyer education, especially if you're a first-timer. And all of them require you to live in the home -- no vacation homes or rentals allowed.

Lenders also offer government-backedprograms that are not restricted by income, but their features are helpful for homebuyers who earn less.

Fannie Mae's HomeReady program and the Home Possible Advantage loan from Freddie Mac feature low down payment requirements. You only need three percent of the home's purchase price, and that can be a gift, grant or loan from an acceptable source.

In addition, mortgage insurance for these loans is discounted. With three percent down, standard mortgage insurance for a buyer with a 720 FICO score is .95 percent per year. With these special programs, though, you might pay just .65 to .77 percent.

There is no minimum required contribution from the borrower. Even better, the home seller is allowed to pay closing costs of up to three percent of the purchase price. Instead of negotiating a lower sales price, try asking the seller to cover your closing costs.

If you're not buying within city limits, you may qualify for a USDA home loan. This program was created to help borrowers with low-to-moderate income buy homes in rural areas.

About 40 percent ofthe US population lives within designated rural areas. With a USDA home loan, you can buy a home with no money down and 100 percent financing.

There are two type of USDA loans -- the Guaranteed Program for those with incomes that don't exceed 115 percent of the Area Median Income (AMI), and the Direct Program, for those with income between 50 and 80 percent of the AMI.

USDA-approved mortgage lenders make the Guaranteed loans, whilethe government funds Direct loans without involving private lenders at all.

You can find USDA income limits for 2017 on this site.

The VA mortgage for military homebuyers is not specifically for low-income applicants, but it's helpful for several reasons.

First, there is no minimum credit score under the program (although lenders can add their own minimums if they want to).

Second, there is no down payment requirement. You can finance 100 percent of the purchase price.

Third, there is no mortgage insurance. The VA Funding Fee can be wrapped into the loan amount.

Finally, VA mortgages allow sellers to pay up to four percent of the purchase price in closing costs. So you can get into a home with nothing out-of-pocket.

This program offers unique benefits for nurses, first responders and teachers. If you're eligible, you can buy HUD foreclosure homes at a 50 percent discount. Use an FHA mortgage, and you only need $100 for a down payment.

You find the homes on HUD's Web site, and you need a licensed real estate agent to put your offer in for you.

If your offer is accepted, and you qualify for financing, you get the home. The 50 percent discount makes it a lot more affordable. The discount is actually a second mortgage.

This second mortgage, though, has no interest and requires no payments. Live in the home for three years, and the second mortgage is terminated.

Manufactured housing is some of the most affordable around. Homes on approved foundations and taxed as real estate can be financed with many mainstream mortgage programs.

Many programs require slightly higher down payments or more restrictive terms for manufactured homes. HomeReady, for example, increases the minimum down payment from three percent to five percent if you finance a manufactured home.

Mobile homes that are not classified as real estate can be purchased with personal loans like FHA's Title 2 program. These are not mortgages, because the homes are not considered real estate.

This program allows you to stretch your home-buying power. If you meet income-eligibility guidelines, you get a tax credit equal to some percentage of your mortgage interest.

Lenders are allowed to add this credit to your qualifying income when they underwrite your mortgage. This allows you to qualify for a higher mortgage amount than you otherwise could.

Mortgage credit certificatesare issued by many states, counties and cities, and their rules and amounts vary widely.

Down payment assistance may be offered by charities, government agencies, employers and other sources. It usually takes the form of a grant or loan.

Most programs impose some form of income limits on recipients. Some, however, provide assistance to people who buy in "underserved" or "redevelopment" areas regardless of income.

Average down payment assistance is about $12,000. Surprisingly, many who qualify for DPA never apply for it -- because they don't know it exists.

Now you know about these programs, so ask your local real estate agents or housing authority about thosethat might apply to you.

It's possible for people to buy a house with low income and pay nothing out-of-pocket.

Between down payment assistance, concessions from sellers, or other programs like Community Seconds, you can buy a home with no money, as long as your income and credit fall within the program guidelines.

Many programs allow you to buy a house with low income because their rates are lower than those of standard mortgages. However, even government-backed loan rates are not set by the government. You have to get a few quotes from several lenders, and then choose your best deal.
  
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