There are several types of mortgage loan programs available to low income home buyers. The best option for you will depend on the type of property you are interested in, where it is located, and your individual background and financial situation. Whatever your circumstances, home loan programs are available from several sources that may fit your needs.
Government loans are commonly used by those seeking low income home loans. There are several agencies that offer these type of loans, such as the USDA. The applicant must be a U.S. citizen or able to obtain citizenship to obtain a government loan. Available programs include:
USDA Section 502 Direct Loan
The USDA Section 502 Direct Loan program is designed for low income and very low income prospects. The program requires the applicant, and the potential financed property to meet certain requirements. For example:
- The applicant must be in need of housing and the can't secure financing elsewhere.
- The property must be used as a primary residence and not be used as a source of income
- The house must not be over 2,000 square feet.
- It cannot have an in-ground swimming pool.
The first step in pursuing this type of loan is to check income eligibility and check eligibility of the property. You must also determine that the home does not go over the loan limits for the applicable area. This loan is ideal because the interest rate can be as little as 1 percent and there is zero down payment. Additionally, the loan term ranges from 33 years to 38 years. To apply, contact your state office.
USDA Guaranteed Loan
USDA Guaranteed Loans do not come directly from the USDA. Instead, they are guaranteed loans offered through lenders. With this type of loan you can make improvements on the property, construct a new home or even move an existing home. Existing homeowners who are in need of a low income loan may be able to refinance their existing loan if eligible.
The first step in obtaining a USDA guaranteed loan is to check income eligibility and property eligibility. After determining eligibility, contact an approved lender. Approved lenders can offer up to a 90 percent loan guarantee. The lender can discuss the interest rate and term available.
The Federal Home Administration (FHA) is another potential source for low income home loans. The FHA is part of the United States Department of Housing and Urban Development (HUD) and insures home loans through approved FHA lenders.
An FHA loan is ideal for first-time homebuyers who are seeking a low down payment option. A down payment can be as little as 3.5 percent of the price of the home. This loan is also a good option for those seeking manufactured home loans.
If you are an eligible veteran, you may find that a VA Home Loan is your best mortgage option. The Veterans Administration (VA) partially guarantees these loans, which are available through mortgage lenders, mortgage brokers and banks.
Generally, there is no down payment requirement. This program has no maximum debt ratio requirements and no minimum credit score requirements though borrowers do have to show that they can afford the monthly payment. There is no mortgage insurance requirement, which makes the monthly payment cheaper than a traditional mortgage.
Veterans are allowed up to $417,000 in financing with do down payment required. Applicants should first determine loan eligibility.
HUD offers a database of state agencies that may provide mortgages for low income households. For example, the State of Oregon offers the Oregon State Bond Program for families located in Oregon that have low income. Other forms of assistance such as grants and vouchers may be available as well. Review the database to see what might be available in your state.
Habitat for Humanity
Habitat for Humanity is a nonprofit organization based on the belief "that everyone should have a safe, affordable place to call home." In exchange for sweat equity, selected low income applicants can help build their new home. In addition to having low income, applicants may also have to meet other requirements, such as the need for safe housing, state residency requirements, discharged bankruptcy if applicable and the ability to make the mortgage payment.
Habitat for Humanity has multiple locations in each state and some requirements may differ. To apply, contact your local Habitat for Humanity.
Lenders and Mortgage Brokers
Some programs specific to low income home owners are available through traditional lenders and mortgage brokers.
BOA Affordable Loan Solution
Bank of America offers an Affordable Loan Solution mortgage for low to moderate income applicants. The down payment on this loan can be as low as 3 percent. Down payment assistance is accepted with this program. This loan is ideal because of the low down payment option and there is no mortgage insurance, which lowers the monthly mortgage payment.
Certain requirements may apply to qualify, such as home counseling. The applicant also can't own any other properties prior to closing on the home. To begin, visit the Affordable Loan Solution website to pre-qualify online or call 866-467-6492 to contact a lending specialist.
Fannie Mae HomeReady
The Fannie Mae HomeReady mortgage is available for low to moderately low income applicants through Fannie Mae. Financing can be up to 97 percent of the purchase price, with the down payment as little as 3 percent. An additional benefit of this loan is that other income is considered, such as income from other household members and even rental income. Applicants must complete homebuyer education and demonstrate creditworthiness.
The first step to obtaining a HomeReady mortgage is to determine income eligibility. Most mortgage companies, mortgage brokers and banks offer Fannie Mae loans.
Explore Your Options
While seeking a low income mortgage loan, it's always good to investigate all loan options. Get pre-qualified first and then shop for a home. Remember to shop for a home that is affordable and that meets your lenders criteria if applicable. Shop for the best interest rate and loan term. Most of all, make sure it is affordable.