Exploring Low-Income House Buying Options

Buying a home is a major life goal for many, but if you're working with a limited income, the path to homeownership can feel especially overwhelming. Rising home prices, large down payments, and strict lending requirements often make it seem out of reach. But don’t get discouraged—there are plenty of resources available to help.

From government-backed loan programs like FHA, VA, and USDA loans to down payment and closing cost assistance programs, there are several options designed specifically to support low- to moderate-income buyers. These programs can make the process more accessible and affordable. With a bit of research, preparation, and the right support, buying a home on a low income is absolutely possible.

This blog post explores the low-income house-buying options that are available to you to achieve this milestone. 

 

What are the Different Loan Types for Low-income Borrowers?

Low-income borrowers typically include individuals with limited income or lower credit scores. Essentially, anyone who finds it difficult to qualify for a traditional mortgage may benefit from these loan options. Here are some of the most common choices:

Conventional Loans

Conventional loans are issued by private lenders. They are not insured by the federal government. There are two main types of these loans:

• Conforming Loans: These loans meet the guidelines set by the Federal Housing Finance Agency (FHFA), including requirements for minimum credit score, down payment, and maximum debt-to-income (DTI) ratio. The FHFA also sets limits on how much you can borrow. For 2025, the baseline conforming loan limit set for a one-unit home is $806,500 in most areas and up to $1,209,750 in high-cost regions.

• Non-Conforming Loans: These do not meet FHFA guidelines and often come with more flexible terms but may carry higher interest rates or require more documentation.

The most common mortgage type in the U.S. is the 30-year fixed-rate conforming loan. While the qualification requirements can be strict, these loans are often more affordable compared to government-backed options.

Qualifying Criteria

• Minimum credit score of 620

• Debt-to-income (DTI) ratio of less than 50% (ideally around 36%)

• Down payment of 3% for a fixed-rate loan and around 5% for an adjustable-rate loan

• Private Mortgage Insurance (PMI) is required if the down payment is less than 20%

• Closing costs usually fall between 3% to 6% of the home’s purchase price

FHA Loans

FHA loans are supported by the Federal Housing Administration; they are popular among first-time homebuyers with low credit scores or limited income. Because these mortgages are insured by the FHA, lenders face reduced risk, making it easier for borrowers to qualify.

One of the biggest plus points of FHA loans is their flexible eligibility criteria, making them a great option for low-income buyers who might not meet the stricter guidelines of conventional or traditional loans.

Qualifying Criteria 

• Minimum credit score of 580 with at least a 3.5% down payment

• Credit score between 500-579 with a 10% down payment

• Debt-to-Income (DTI) ratio must be below 43%

• Closing costs typically range between 3%-6% of the home’s purchase price.

• Proof of employment/income is mandatory for all applicants

VA Loans

VA loans are guaranteed by the U.S. Department of Veterans Affairs. They are available exclusively to eligible military service members, including veterans and surviving spouses. One of the best things about a VA loan is that it allows you to buy a home with zero down payment & better interest rates. This makes homeownership more accessible for those qualified people.

Qualifying criteria

While specific eligibility requirements may vary slightly between lenders, here are some general criteria borrowers need to meet:

• Proof of military service through a VA Certificate of Eligibility (COE)

• The VA loan doesn’t have a minimum credit score, but most lenders need a score in the mid-600s or higher.

• A Debt-to-Income (DTI) ratio typically below 41%

• Borrowers must pay a VA funding fee, which varies depending on the down payment amount & whether it’s their first time using a VA loan.

USDA Loans

USDA loans are guaranteed by the U.S. Department of Agriculture and are aimed at helping low- to moderate-income borrowers become homeowners. These loans are specifically designed for those purchasing a home in eligible rural and suburban areas. Because the USDA backs the loan, lenders are more likely to approve applicants with limited savings or less-than-perfect credit.

USDA loans have no down payment requirement and usually present lower interest rates as compared to conventional loans.

Eligibility Criteria:

• Minimum credit score of 640

• Household income must fall below the area's income limits set by the USDA

• Must have a steady and dependable income

• The home must be in a USDA-designated rural area

• The property must be used as the primary residence. 

HomeReady & Home Possible Loans

HomeReady and Home Possible are conforming conventional loans backed by Fannie Mae (HomeReady) and Freddie Mac (Home Possible). These loans offer flexible terms for lenders, similar to government-backed loans, but with income limits for borrowers.

Eligibility criteria include:

• HomeReady minimum credit score: 620 

• Home Possible minimum credit score: 660

• Completion of a homeownership education course is mandatory.

• Household income must be 80% or less of the area’s median income.e

Home Possible loans require a 3% down payment. Mortgage insurance is affordable, and borrowers have flexibility in sourcing funds for the down payment.

HomeReady loans also come with a minimum 3% down payment. Additionally, borrowers may receive a credit of up to $2,500, which can be applied toward the down payment or closing costs. Mortgage insurance is reasonably priced, and underwriting requirements are more flexible.

Home Buying Assistance Programs

These programs provide additional support to make homeownership more affordable. From forgivable loans and grants to homebuyer education, they provide valuable resources that can ease the financial burden of buying a home.

1. Housing and Urban Development homes

HUD offers a less conventional but potentially more affordable path to homeownership. A HUD home is a property that had an FHA loan where the borrower defaulted, leading to foreclosure. The Department of Housing and Urban Development (HUD) then sells the home to recover the loss, often listing it below market value. This creates an opportunity for budget-conscious buyers to purchase a home at a reduced price.

However, there are a few drawbacks. The biggest issue is that HUD homes are sold as-is, meaning no repairs are made before the sale. Since the home was previously occupied, you may need to invest in repairs after purchase. While the low price is attractive, it’s important to factor in these additional costs.

To make an informed decision, it's strongly recommended to get a home inspection before finalizing the purchase. This helps you assess the property's true condition. You can browse available listings on the HUD Homestore website.

2. Housing Choice Voucher Program

The Housing Choice Voucher Program—commonly known as Section 8—offers valuable rental assistance to low-income families. Managed by nearly 2,000 local public housing agencies across the country, the program provides eligible households with vouchers to help cover rental costs.

In some areas, qualified families can also use these vouchers to purchase a home instead of renting. To explore this option, you’ll need to contact your local housing agency to see if homeownership is supported in your area.

To qualify for the program, you must:

• Meet the income limits set by your local housing agency

• Be at least 62 years old or

• Have a qualifying disability or

• If under 62 and without a disability, you have employment requirements

• Be a first-time homebuyer

• Complete a HUD-approved homeownership counseling program

For more information or to find your local agency, visit HUD’s Public Housing Agency Directory.

3. Good Neighbor Next Door Program

Offered by the Department of Housing and Urban Development (HUD), this program helps teachers, law enforcement officers, firefighters, and emergency medical technicians purchase eligible HUD homes at a 50% discount. These properties are located in designated revitalization areas.

To qualify, you must meet the profession-specific requirements and commit to living in the property for at least three years.

You can explore available listings in your area by visiting the HUD Homestore website.

4. State and Local Homebuyer Assistance Programs 

Many state & local housing agencies offer down payment assistance in the form of forgivable loans and grants, which can be utilized toward your down payment or closing costs. Additionally, local nonprofits and charities may provide support for eligible homebuyers.

Some states also offer Mortgage Credit Certificate (MCC) programs, which give you a federal tax credit depending on a portion of the mortgage interest you pay. This helps reduce your overall tax liability.

How to Buy a House with a Low Income

Here are some expert-backed tips to help you buy a home on a limited budget:

• Boost Your Credit Score: Always aim for a credit score of 670 or higher. If yours is lower, create a plan to improve it. Start by making timely payments and reducing existing debt.

• Create and Stick to a Budget:  Before you actually begin house hunting, create a realistic budget. Make sure you consider not just the monthly mortgage payment but also property taxes, closing costs, insurance, repairs, and ongoing maintenance.

• Lower Your Debt: Paying off existing debts will improve your debt-to-income (DTI) ratio, which can strengthen your loan application & potentially get you better terms.

• Save for Upfront Costs: Make sure you’ve saved enough to cover both the down payment and closing costs. Every bit helps when you’re on a tight budget.

• Consider a Co-Signer: If you’re struggling to qualify for a mortgage on your own, a trusted co-borrower can help increase your chances of approval.

Are you ready to find the right mortgage program for your needs? Connect with the experts at Total Mortgage for personalized guidance and recommendations.