After the market crash of 2008, it became briefly much more difficult to secure a home loan. High credit scores and down payments were the norm, along with plenty of income. Many lower income Americans were left out of the American Dream.
Today, the mortgage market has mostly recovered. There now are many ways to secure a low income home loan. Let’s review some of your best options below.
#1 HUD Neighbor Next Door Program
Some lower income Americans buy a home through HUD’s Good Neighbor Next Door program. This low income home loan program is set up to help the revitalization of many areas by offering low priced homes to certain workers:
- Law enforcement
Many of these HUD homes come with as much as a 50% discount off the list price.
Any bids for these value homes in revitalizing areas need to be submitted by a real estate broker who is registered with HUD.
#2 Dollar Homes
This is another HUD effort that helps local city and town governments to provide more housing opportunities to low income people. The program allows the city or town to buy some homes owned by HUD for $1 each.
These are usually single family homes that were foreclosed upon by FHA.
The Federal Housing Administration or FHA allows some community and faith based nonprofit groups to buy HUD homes with up to a 30% discount.
With the discount the nonprofit can invest in their area by rehabbing the property and reselling it to buyers with a moderate or low income.
#4 USDA Home Loan
This is a fantastic, low income home loan program that may allow you to buy a home with zero money down. These properties are for sale in areas that USDA calls ‘rural.’ In reality, many of these areas are very suburban. You should check with the USDA website to determine if the subject property qualifies for a USDA mortgage.
This program is strongly geared towards low and moderate income buyers. You also can get this program with 100% financing, so it puts home ownership in reach for millions of lower income Americans.
#5 FHA Home Loan
The Federal Housing Administration or FHA is a major player in the mortgage market for people with low to moderate incomes.
The FHA backs or guarantees your mortgage loan. This means that in case you do not pay, the lender is paid back by the US government.
This guarantee means that lenders are more willing to extend credit to lower income borrowers, borrowers with limited down payment, and borrowers with marginal credit.
Because the FHA backs the loan, many lenders have more flexible lending criteria on their loans. This means that you can have a lower income, higher debt to income ratio, and still get a loan in many cases.
You also can have a credit score as low as 620 or even 600, and possibly put down as little as 3.5%.
The FHA mortgage loan is certainly one of the most attractive and flexible finance program for lower income home buyers.
#6 VA Home Loan
The Veterans Administration offers a loan program that is very similar in many respects with the FHA program. The major difference: The program is only for military veterans and current active military.
Other than that, the loans are very similar. You can have a low income, as the debt to income ratios that lenders use are very flexible. They are even more flexible with veterans because a VA home loan is considered a major benefit of military service.
These loans are backed by the VA. Thus, if you do not pay the loan, the VA will reimburse the lender for most of the loan’s cost.
One other difference between the VA and FHA loans are the former can be obtained with 100% financing. That’s right, you can put down zero on your home and still get the mortgage.
The Bottom Line on Low Income Home Financing
It is quite amazing how much the mortgage lending market has loosened in the last five years. When the crash first happened, so many people were shut out of the housing market. But many new loan programs became available, and after a few years, it was realized that there had been an overreaction in some quarters. It had become too hard to get a mortgage.
Getting a home loan is so important for the American economy, as well as the American psyche. Allowing more people to get a home loan helps the economy as a whole. With a “low income loan” you will need to document your income. The no-doc mortgage is not an option with this product. If you are unable to document your income traditionally, consider speaking with stated income mortgage lenders that specialize in this type of unique financing.
These new low income home loans help many Americans to own their own home and to stop paying rent. Owning a home acts as a stimulus for economic growth; people who own their home tend to spend more money on things to fix it up, whereas renters do not bother to maintain the property.
We hope in the next few years of the Trump administration, there will be even more affordable home loans made available, so people with low incomes can get their piece of the American Dream.