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House prices have skyrocketed, making it increasingly difficult for potential buyers with low incomes to get a foot on the property ladder. For people with low income, it may seem like there are too many obstacles to getting a mortgage—whether it’s the down payment requirement, debt-to-income (DTI) ratio limit or having the right credit score. But there are mortgage options specifically designed for low-income borrowers to achieve homeownership.
Types Of Loans For Low-Income Mortgage Applicants
Individual lenders may have their own programs built for low-income mortgage borrowers but the most common types of these loans programs are backed or issued through a government program. Here are some of the more popular programs.
The U.S. Department of Agriculture (USDA) provides homeownership opportunities to low- and moderate-income Americans through several loan, grant and loan guarantee programs. However, you must live or plan to live in an eligible rural area to qualify.
These low-interest, fixed-rate mortgage loans are provided directly by USDA Rural Development. Financing is also offered in the form of a loan from a lender and guaranteed by USDA Rural Development for qualified borrowers. Neither of these home loan programs require a down payment.
For example, the USDA’s Section 502 Direct Loan Program assists those with low and very low income to live in eligible rural areas by providing payment assistance to improve their ability to repay the mortgage—a key metric lenders look at to determine whether to approve a loan. The amount of payment assistance is determined according to your income.
The Section 502 Guaranteed Loan Program works with approved lenders to provide low- and moderate-income households with mortgages to buy homes in eligible rural areas. The program provides a 90% guarantee to approved lenders in order to reduce the risk of extending 100% loans to eligible rural homebuyers. Borrowers do not have to put any money down with this program.
How do I qualify for A USDA loan?
In addition to buying in an eligible location, other specific USDA loan requirements include:
- The home you are buying must be your primary residence
- You must demonstrate you can manage debt
- Having a DTI ratio of 41% or lower
- Income limits for USDA loans vary by program and location. For guaranteed loans, your income can’t exceed 115% of the median income for your area. Income limits for direct-issue loans are much lower—as low as 50% of the median income in certain areas.
Federal Housing Administration (FHA) …….