Homeownership in the U.S. has always been tied to the “American Dream“–beautiful lawn, white picket fence, and all the accoutrements of comfortable living that one could want. Unfortunately, that ideal is harder to attain for a large portion of the population. For people living in a low-income household, it’s hard not to feel like you’re completely priced out of the housing market. Yet thanks to some public and private low-income mortgage options, the dream of homeownership doesn’t need to feel as out of reach as it may seem.
There are programs at the state and federal level that can provide low-income mortgage loans without having to put up a large down payment on the house.
Some programs require that the mortgage be used on certain properties in specific U.S. regions.
With a total budget of nearly $4.5 trillion, the federal government is the largest provider of loans, grants, and other forms of assistance in the country. Since it’s in the government’s best interest to keep as many of its citizens housed to maintain a happy and healthy workforce, agencies like the Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA) have programs aimed at helping lower-income households afford homes.
Through the following programs, borrowers that meet certain criteria can seek and obtain government-backed mortgages with varying requirements, down payment minimums, and perks. Thanks to the fact that they’re backed by the U.S. government, lenders often see these programs as a low-risk investment, leading to better terms and potentially more affordable rates–though specifics vary with each program.
With generally less strict requirements than other government-backed programs, the FHA loan program is designed to help first-time low-income buyers enter the housing market. To qualify for the program, borrowers should have a median credit score of 580 and at be able to afford at least a 3.5% down payment on the home. Depending on the county you plan on making your purchase, you will have an FHA loan limit by consulting the HUD website.
Regardless of your credit score and available down payment, all borrowers are required to pay upfront. Borrowers are also on the hook for annual mortgage insurance premiums.
It’s sad to say, but many people working in public service careers don’t make as much money as you’d think. For example, a high school teacher’s base annual salary can start at $36,000 and the average income for firefighters is just over $48,000. Both of those figures would land them in the low-income group according to most criteria.
Through the Good Neighbor Next Door program, provided by HUD, eligible public service employees can purchase a home at 50% off. All that’s required is that you are currently working as a full-time pre-K through 12th-grade educator, emergency medical technician, firefighter or law enforcement officer, are planning to buy a home in a HUD-designated revitalization area, and are willing to commit to living in that home for at least three years.
The catch, however, is that if more than one person submits an offer on a home, an offer will be chosen at random. Also, a silent second mortgage will be required for the discount amount, though you won’t be making payments and no interest will accrue as long as you stay in that home for the requisite three years.
Also known as the Rural Development loan, this option helps prospective homeowners with low-income buy a home without a down payment at all. The major criteria for this loan, however, is that it’s only available for certain properties located in rural parts of the country.
According to the USDA, eligible applicants can use the loan to purchase, build, rehabilitate, improve or relocate a dwelling in an eligible rural area with 100% financing. Furthermore, the program guarantees 90% of the loan, so lenders are made extremely comfortable knowing there’s less risk to approve such a loan without a down payment.
Applicants looking to get into this program cannot exceed 115% of the median household income in the chosen region. They must also agree to personally live in the home as their primary residence and they must be a U.S. citizen, U.S. non-citizen national, or qualified alien.
Veterans, active members, and surviving spouses with a low annual income may be eligible for a VA loan. Provided by the U.S. Department of Veterans Affairs (previously the Veterans Administration), these loans are designed to connect individuals connected to the military with access to loans from private lenders at competitive rates.
If obtaining mortgage assistance from the VA, know that there’s no requirement for a down payment and the seller can help cover your closing costs. Furthermore, it doesn’t require any monthly mortgage insurance.
Eligibility is based on the kind of service and for how long you or your loved one served. If currently in active duty or service was during wartime, you need at least 90 days experience. If service was during peacetime, you need 181 or more days. If you were separated from the service, you must have 24 months or the full ordered period of service. And if in the National Guard or Reserves, you must have served at least six years.
Along with assistance from the federal government, all 50 states and U.S. territories have the capability to provide rental, homeownership, and house buying assistance. Sponsored by your state or local governments, these programs vary on a state-by-state basis.
To find out more about your state’s housing assistance programs, including any mortgage loan programs, you should visit the state’s HUD page. Depending on the state and its resources, assistance could come in the form of down payment assistance, grants, or forgivable loans. Eligibility and requirements may vary depending on which state you’re looking to become a homeowner in.
If you’re looking at the current housing market and wondering if you’ll be able to afford your first home or are looking to move into a new one, then knowing where you stand in the among the various income “classes” can help you find the right home loan for you. Not only will you then know how much you can afford per month in payments, but you may also be able to take advantage of special loans or programs if you need the additional help.
On a national level, being considered a “low-income household” means that the total income that everyone above the age of 15 in the home earns per year is less than two-thirds of the median income. According to a 2020 report by the United States Census Bureau, the median household income in 2019 was $68,703. In a 2020 report from the Pew Research Center, lower income households bring in “less than roughly $40,100.
While those figures may look reasonable, the threshold for low-income housing and other programs for low-income households can vary widely from state to state. According to the latest date from the Department of Housing and Urban Development (HUD), a family of four in New Jersey is considered low-income if they bring in $79,900 per year, while that same family in Mississippi is considered low-income if they earn $48,000 per year.
All of this is to say that the concept of “low-income” is relative. While your state or the federal government may designate your household as middle-class or lower-class, a lender could have you placed somewhere else based on their own set of criteria. As you seek out a low-income loan option, make sure that you actually qualify before applying. Most loan options will specify the maximum amount of money an applying household is able to make if they want to be considered for a loan.