How to Buy a House With Low Income

ByNathan Paulus
Edited byRae Osborn

Updated: November 30, 2023

ByNathan Paulus
Edited byRae Osborn

Updated: November 30, 2023

Advertising & Editorial Disclosure

Navigating homeownership with a limited income requires strategic planning and informed decision-making. Key steps include enhancing credit scores, reducing debts and establishing a solid budget – all important to secure favorable loan terms.

Various loan options tailored for low-income buyers are available, such as FHA, USDA, VA, HomeReady and Home Possible loans. Leveraging assistance programs for low-income and first-time buyers can also make home buying a more attainable goal for individuals facing financial constraints.

Key Takeaways

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Begin with improving your credit score, minimizing debts and establishing a budget to qualify for a low-income home purchase.

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Save for a substantial down payment and explore down payment assistance programs.

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Leverage home loan options like FHA, USDA, VA, HomeReady and Home Possible loans.

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Explore various home-buying programs and grants available for low-income families and specific community groups.

Qualifying for a Home Purchase with Low Income

Strengthen your financial position to qualify for a home purchase even with low income. Focus on enhancing your credit score for better loan eligibility, reducing your debt-to-income ratio for more favorable loan terms, creating a comprehensive budget and saving for a down payment. Start by taking these steps:

Manage Your Credit Score

A higher credit score suggests a history of responsible credit management, increasing the likelihood of loan approval. Scores usually range from 300 to 850, with anything above 670 considered 'good'. Lenders often prefer scores above this threshold, but some loan programs cater to lower scores. Below, we outline some practical steps to help you increase your credit score:

  • Pay Bills On Time: Ensure timely bill payments to affect your payment history positively.
  • Reduce Balances: Keep credit card balances low, ideally below 30% of your credit limit.
  • Avoid New Credits: Limit new credit applications to avoid negative impacts from hard inquiries.

Pay Off Your Debt

Lowering your debt improves your debt-to-income ratio – the percentage of income that goes towards debts – which is essential in loan approval. A good DTI ratio is below 36%, suggesting you can take on a mortgage without financial strain. Some loan programs may allow higher ratios. Consider the following when tackling your debt:

  • Prioritize High-Interest Debts: Pay down high-interest debts to lower your DTI ratio.
  • Halt New Debts: Avoid taking on new debt before applying for a mortgage.
  • Calculate DTI: Use MoneyGeek’s DTI calculator to check your debt-to-income ratio.

Establish a Budget

A clear budget helps you understand your financial capacity for a mortgage and ensures long-term financial health. Carefully manage your finances and plan for both immediate and future expenses. This process involves:

  • Track Income and Expenses: Document your monthly income and all expenses for effective financial planning.
  • Reduce Spending: Identify areas where you can cut back to increase your savings for home buying.
  • Save for Home Buying Costs: Set aside a realistic portion of your income for the down payment and other home-related expenses. Include future costs like property taxes, insurance and maintenance in your budget.
  • Plan for Long-Term Expenses: Consider the ongoing costs of homeownership and factor in potential life changes that could impact your financial situation.

Save for a Down Payment

A substantial down payment reduces your mortgage payments and overall interest. Some mortgage options also exist for lower or even no down payment. Lower down payments often require private mortgage insurance (PMI) or mortgage insurance premiums (MIP), which protect the lender in case of default.

Before you begin saving for your down payment, consider the following:

  • Determine Your Down Payment Goal: Setting a clear target based on your chosen mortgage type helps in planning your savings strategy.
  • Open a Dedicated Savings Account: Deposit your down payment funds into a separate savings account to track your progress and avoid spending it on other expenses.
  • Explore Down Payment Assistance: These programs provide essential financial aid for low-income buyers, covering down payments and closing costs to facilitate homeownership. We examine some of your options in the table below.
How to Apply

Offers down payment and closing cost assistance in the form of non-repayable grants.

Varies, often includes first-time homebuyers and income limits.

Apply through a participating lender.

Provides down payment assistance to low-to-moderate-income borrowers.

Must meet income requirements and have a qualifying credit score.

Contact a Chenoa Fund-approved lender.

Federally funded program providing grants to states and localities for building, buying and rehabilitating affordable housing.

Eligibility varies by local program guidelines.

Apply through local community housing development organizations.

Loan Options for Low-Income Buyers

Loan programs like FHA Loans, USDA Loans, VA Loans, HomeReady and Home Possible are specifically designed to help those with limited income achieve homeownership. These programs offer unique benefits and have specific requirements tailored to assist low-income individuals. Learn about their features and requirements to find the right option for you:

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A co-signer can boost your mortgage approval chances, especially with low income or credit issues. Both parties' financial details are assessed, reducing risk for lenders. Keep in mind that co-signers share legal responsibility for mortgage payments, meaning their credit is affected by your payment timeliness.

FHA Loans

FHA Loans are insured by the Federal Housing Administration and cater to first-time homebuyers or those with limited credit or savings. We explore some of their requirements below:

  • Credit Score: A minimum score of 580 for favorable loan terms.
  • Down Payment: As low as 3.5% for credit scores over 580.
  • Debt-to-Income Ratio (DTI): Ideally under 43%.
  • Income Verification: Stable income sources are necessary, evidenced by documents like pay stubs or tax returns.
  • Payment History: A track record of timely debt payments boosts lender confidence.
  • Mortgage Insurance Premiums (MIP): Mandatory for down payments of less than 20%, including an upfront MIP at loan initiation and a monthly MIP.
  • Loan Limits: These vary based on location and property type, with minimum and maximum borrowing limits set annually.
  • Property Standards: Homes purchased must meet FHA’s safety, soundness and security standards.

USDA Loans

USDA Home Loans, backed by the U.S. Department of Agriculture, promote homeownership in rural and suburban areas. They are particularly advantageous for low-income families, offering 0% down payment options and attractive interest rates. These loans cater to various needs, including buying, improving, or building homes. Learn more about their requirements below:

  • Credit Score: A minimum score of 640 for automated approval, though lower scores may be considered with additional documentation.
  • Debt-to-Income Ratio: Ideally, it should be 41% or less, though higher ratios may be acceptable with compensating factors.
  • Income Limits: USDA home loans are geared towards low-to-moderate-income families, with limits varying by location and household size.
  • Citizenship: Applicants must be U.S. citizens, non-citizen nationals or qualified aliens.
  • Property Location: Must be in a USDA-eligible area. Check USDA’s property eligibility.
  • Property Standards: Homes must meet USDA’s safety and structural integrity criteria.

VA Loans

VA home loans, backed by the Department of Veterans Affairs, are a unique mortgage option for service members, veterans, and certain spouses. They offer significant benefits like no down payment, no private mortgage insurance (PMI), and competitive interest rates, making homeownership more accessible and affordable. We've listed down the key requirements for VA loans below:

  • Service Eligibility: Active duty with minimum service, six years in Reserve/National Guard or un-remarried spouses of deceased service members.
  • Credit Score: While the VA doesn't set a minimum credit score, most lenders prefer a score of 620 or higher.
  • Income: One needs a stable and reliable income to ensure loan repayment capability.
  • Property Standards: Homes must meet the VA’s criteria for safety and livability.


The HomeReady mortgage, offered by Fannie Mae, stands out for its low down payment requirements and flexible funding options. This program is particularly beneficial for first-time or repeat homebuyers with limited cash for down payments. It also considers supplemental income sources like boarder or rental income. You may find their requirements here:

  • Income Limits: This is aimed at low-income borrowers, with limits based on the area median income.
  • First-time or Repeat Homebuyers: Both categories are eligible.
  • Supplemental Income Consideration: Income from boarders or renters can be included in the qualification process.
  • Down Payment: As low as 3% for home purchases or refinances.
  • Mortgage Insurance: Reduced coverage requirement above 90% loan-to-value (LTV), with cancellable mortgage insurance once the borrower’s equity reaches 20%.
  • Homeownership Education: Mandatory for all first-time homebuyers, which can be fulfilled through Fannie Mae HomeView®.

Home Possible

The Home Possible® mortgage by Freddie Mac helps very low- to low-income borrowers buy homes with a low down payment requirement of just 3%. It's ideal for first-time buyers, move-up borrowers and retirees seeking a flexible, low down payment option. Learn more about their key requirements below:

  • Income Limits: Must be limited to 80% of the Area Median Income (AMI), with no geographic limits on loan amounts.
  • Property Location: Must be in a designated area as per the Home Possible Income & Property Eligibility Tool.
  • Borrower Types: The program is open to various borrower types, including first-time homebuyers and retirees.
  • Down Payment: Minimum of 3% for home purchases or refinances.
  • Mortgage Insurance: Reduced coverage requirement for LTV ratios above 90%, with cancellable mortgage insurance upon reaching 20% equity.
  • Property Types: Eligible properties include 1-4 units, condos, co-ops and planned-unit developments; manufactured homes are eligible with certain restrictions.

Low-Income Home Buying Programs

Various programs are available to assist low-income individuals in buying a home; each offers a pathway to make homeownership more attainable. These include local initiatives, grants for low-income families, special first-time buyer programs and other unique assistance options.

Grants and Loans Specific to Low-Income Families

Specialized grants and loans address the unique homeownership challenges of low-income families, offering targeted financial support.

How to Apply

Provides grants and loans to support homeownership and affordable rental housing for low- to moderate-income individuals.

Eligibility varies, typically for low- to moderate-income applicants.

Apply through a member financial institution.

It is a network of community development organizations offering various homeownership programs, including financial assistance.

Eligibility criteria vary by local organization.

Contact a local NeighborWorks organization.

Offers loans and grants for home purchase and repairs in rural areas.

Low-income applicants in rural areas; specific requirements vary.

Apply through your local USDA Rural Development office.

Local Initiatives and Nonprofits

Local initiatives and nonprofits offer tailored homeownership assistance, focusing on community-specific needs and affordable housing solutions.

How to Apply

A global nonprofit housing organization working in local communities to build affordable housing.

Must demonstrate a need for housing, ability to pay an affordable mortgage and willingness to partner with Habitat.

Apply through your local Habitat for Humanity affiliate.

Various programs offered by local housing authorities, including affordable housing and homeownership assistance.

Eligibility varies by program and location. Often based on income, family size and housing need.

Contact your local housing authority for specific programs and application details.

Other Special Programs

This category includes unique programs for specific groups, such as veterans and teachers, expanding the range of homeownership assistance.

How to Apply

Combines HUD housing vouchers with VA supportive services.

Homeless veterans and their families.

Apply through your local VA Homeless Program.

Helps homebuyers or homeowners finance energy-efficient improvements.

Available to those who qualify for FHA-insured mortgage programs.

Apply through an FHA-approved lender.

Allows Section 8 vouchers to be used for homeownership expenses instead of rent.

Must be a recipient of Section 8 vouchers and meet specific criteria.

Apply through your local Public Housing Agency (PHA).

Offers a 50% discount on homes in revitalization areas for professionals in certain public service roles.

Specific to law enforcement, teachers, firefighters and EMTs with a commitment to live in the property for 36 months.

Apply through the program's official website.

Provides housing assistance and grants specifically for teachers.

Teachers at any level, from pre-K to post-secondary.

Through the Teacher Next Door program.

FAQ on Low-Income Home Buying

Can I buy a home with bad credit?
What are the risks of buying a home with low income?
What is the lowest income to qualify for a house?
What is the minimum amount to buy a house in the USA?
What are the requirements to buy a house in America?
How can I get a loan for real estate in the US without income?

About Nathan Paulus

Nathan Paulus headshot

Nathan Paulus is the Head of Content Marketing at MoneyGeek, with nearly 10 years of experience researching and creating content related to personal finance and financial literacy.

Paulus has a bachelor's degree in English from the University of St. Thomas, Houston. He enjoys helping people from all walks of life build stronger financial foundations.