In this post, we’re going to share 6 great mortgage programs that you might not know exist. Having a low income or bad credit score can create major obstacles when purchasing a home, but it doesn’t automatically disqualify you. It’s not easy to save up for a down payment while renting. And it may even be more difficult to maintain a good debt-to-income ratio and credit score.
Luckily, there are several mortgage programs specifically designed to help low-income individuals or families become homeowners. These programs may allow you to buy a home without saving the typical 10 to 20 percent down payment and they can also help you afford the monthly payment once you move in.
Depending on some important factors like your credit score, existing debt, location, and profession, it is likely that you will qualify for a home loan through one of these 6 great mortgage programs.
1. HomeReady Loans
The HomeReady mortgage program from Fannie Mae provides low-income home loans to potential homebuyers with limited funds for a down payment. This program makes underwriting guidelines a bit more flexible to make it easier for borrowers to qualify. This option allows both first-time homebuyers and repeat buyers to participate. If all borrowers are first-time buyers, then an online course about homeownership education must be completed by one person. A few requirements for this option include having a minimum credit score of 620, a minimum down payment of 3%, and an income 80% of the area median income or lower.
2. Home Possible Loans
The Home Possible mortgage program from Freddie Mac also assists low-income borrowers with limited funds for a down payment. Both first time and repeat buyers may qualify and even those who are currently financing a property may be eligible. If all borrowers are first-time buyers, then an online course about homeownership education must be completed by one person. A few requirements for this program include having a minimum credit score of 620, a minimum down payment of 3%, and an income 80% of the area median income or lower.
3. Good Neighbor Next Door
The good neighbor next door (GNND) program is a special loan offered by the US Department of Housing and Urban Development (HUD). It allows home buyers in eligible public service careers to purchase a home at a 50% discount. This program works a bit differently. You find a home on the HUD’s GNND website and make on offer. If more than one person has made an offer, then a lottery is held and the winner’s offer is accepted. If you are selected, you’ll need to prove that you are an eligible public worker. Once approved, a “silent second” mortgage for 50% of the list price is established, but if you live in the home for 3 years, the debt is erased. There are a number of different financing options you can use for this program; however, if you use FHA, you will only be required to put down $100 as a down payment. If you meet the requirements for this program, then it could be the perfect way to secure an affordable mortgage.
4. USDA Home Loan
If you’re looking to purchase a property outside the city limits, then you may qualify for a USDA home loan. This loan option allows you to purchase a home with zero down payment as long as the property is located in an area the USDA designates as rural. The best way to find eligible areas is to search the USDA’s property eligibility map. About 40 percent of the US population lives within a rural area, so if you are low income this option is great. There are two types of USDA loans – the Guaranteed program for those with incomes that don’t exceed 115 percent of the area median income and the direct program for those with incomes between 50 and 80 percent of the area median income. The main difference between these two options is that USDA-approved lenders make Guaranteed loans while the government funds direct loans.
5. Manufactured Housing
Manufactured or mobile homes represent a large portion of available homes in almost every area and they’re affordable. You can find homes for a fraction of the cost of traditional homes which means less money up front and a more affordable monthly payment. Although mobile homes may not appreciate like a traditional home, they are a great option for those with severely limited budgets who want to start their homeownership journey. When looking for these types of homes, make sure that they were built on or after June 15, 1976, as homes built prior to this date do not qualify for traditional financing. There are many different financing options when considering a manufactured home, but if you are looking for the best terms then FHA is the best way to go. The standard FHA guidelines apply only 3.5 percent down and more lenient credit standards.
6. Down Payment Assistance
If you do not qualify for any of the mortgage options listed above, then there may be down payment assistance programs that could benefit you. Assistance can be offered by charities, government agencies, employers, and a number of other sources but government loans and grants are usually the most common. A number of cities, counties, and states offer programs that can help eliminate the painstaking saving process for a down payment. It can be tough to save when you have a low income and these programs can break down the barrier to homeownership for many low-income families or individuals. Click here for a list of programs currently available to Arizona residents.
Although the journey of homeownership can seem long and tiring, there are hundreds of programs across the country just waiting to help you out. Having a low income or bad credit score doesn’t mean you have to give up on your dream of being a homeowner, it just means you have to find a program that works for you and your circumstances.