Low income won’t stop you from getting a mortgage
Many tenants who don’t make a lot of money assume they’ll never be able to own a home.
This is simply not true.
Mortgage Lenders Aren’t That Concerned About Your Income level. This is only one part of mortgage approval, and not even the most important.
Plus, according to the MSM Real Estate Data website, home buyers with incomes as low as $ 40,000 a year or less can afford a home in many cities across the country.
Homes in rural and suburban areas can be even more affordable.
Don’t you have an exorbitant income? It might be worth checking your eligibility to buy a home anyway.
Check Your Mortgage Eligibility (Jul 23, 2021)
Income is not the most important part of your mortgage application
Many potential buyers assume that a lender will review their paycheck and send them on their way.
But a lender would be foolish to do so.
This is because income alone does not determine if you qualify.
Rather, it’s your proposed future payments, compared to your income, that matter most. It’s because of something called a debt to income ratio, or DTI.
The DTI is the comparison between all the payments that go towards the debt and your income.
This ratio is much more important than the gross income. In fact, a lender would much prefer to approve a borrower who earns $ 30,000 per year with 28% DTI than a borrower who earns $ 200,000 per year with 50% DTI.
“RELATED: Low Income Mortgages: How To Buy A Home In 2020
A closer look at the DTI
Lenders love applicants with low DTIs.
Low debt payments mean that the applicant is managing their finances despite a low level of income. He or she is a good credit risk.
Let’s look at two applicants and how lenders look at them.
|Applicant||Low income||High income|
|Monthly income||$ 2,500||$ 10,000|
|Payment of the future house||$ 650||$ 2,500|
|Taxes, insurance, HOA||$ 200||$ 450|
|Car payment||$ 100||$ 700|
|Payment by credit card||25 $||$ 350|
|Ship payment||$ 0||$ 800|
|Total debt payments||$ 975||$ 4,800|
The lender will have a much easier time approving the low income applicant in this example. Typically, the DTI limit is 43% for most types of loans, and as it stands, only the low-income applicant makes the cut.
Low Income Mortgage Programs
Applicants without high income can be approved for any type of loan. There is no “lower limit” income for a mortgage, period.
If the borrower’s house payment and other debts were low enough, he could be approved with an income of $ 10,000 a year or even less!
The good news is, however, that there are many types of loans available today that cater to low-income home buyers. In fact, many agencies set higher income limits on their programs.
Here are some examples.
1. USDA loan
The USDA loan is gaining in popularity because it requires no down payment and comes with less mortgage insurance than FHA loans.
Part of the eligibility check is the location of the property. The United States Department of Agriculture (USDA) sets limits for these zero rate home loans.
But the rural and suburban neighborhoods of the country are eligible. Many towns and villages located just outside major metropolitan areas are often found within boundaries.
These loans are so attractive, in fact, that the USDA has fixed income limits on these loans to ensure that they are used by those who need them the most. Current limits are set at 115% of the region’s median income.
The following are the annual income limits for popular areas across the country.
- Portland, Oregon: $ 84,550
- Dallas, Texas: $ 82,450
- Gainesville, Florida: $ 75,650
- Flagstaff, Arizona: $ 76,100
These income ceilings are in no way restrictive. Still, they demonstrate the USDA’s focus on the low-income applicant. This appears in the DTI requirements for this program. While “according to the book” DTI limits are set at 41%, many borrowers can be approved at higher DTIs with decent credit scores or other compensating factors.
As a home buyer with a lower income, check your USDA eligibility when applying for your home loan.
Check Your USDA Loan Eligibility (July 23, 2021)
2. FHA loans
About half of all single-applicant FHA borrowers had incomes below $ 50,000 per year in 2015 (most recent data available), according to consumerfinance.gov.
It’s no surprise that low-income applicants flock to the FHA. Lenders routinely approve applicants with very high DTIs. In addition, the program requires only 3.5% down payment.
When you’re not earning a high income, saving for a big down payment is next to impossible.
FHA loans were created in 1934 to give low-income tenants a chance to own a home with a stable, long-term loan proceeds. Over 80 years later, this loan program still serves that purpose.
Another area where the FHA shines is credit leniency.
Some lenders approve these loans up to a credit score of 600 or less. According to the mortgage software company Ellie Mae, about 20% of FHA loans go to applicants with a credit score between 600 and 649.
Lenders do not hesitate to approve low income or low credit home buyers.
Check your FHA loan eligibility (July 23, 2021)
3. VA Mortgages
Being in the military is about service, not about the money you earn by doing so.
That’s why many serving military members today – and those separated from service – use a VA loan. These loans do not require any down payment. The barrier to entry is almost non-existent.
Plus, since they don’t need mortgage insurance, homebuyers may qualify for more homes than they would with standard programs.
Let’s take a look at the total monthly payment on a $ 250,000 house.
|Applicant||0% VA loan down||Conventional 5% drop|
|Main interest||$ 1,220||$ 1,170|
|Mortgage insurance||$ 0||$ 150|
|Taxes, insurance, HOA||$ 250||$ 250|
|Total||$ 1,470||$ 1,570|
In this example, using a VA loan means saving $ 100 per month and skip a 5% deposit. Anyone with current or previous military experience should first verify their eligibility for the VA, whether or not they have low income.
Check your VA loan eligibility (July 23, 2021)
4. Good neighbor next door
the Good neighbor next door The program is available to certain public sector employees, including law enforcement officers, teachers, firefighters, and emergency medical technicians.
In other words, the professions that are known to pay a lot less than the job are really worth it.
As a “thank you,” HUD, the FHA Supervisor, is offering some of his real estate at a 50% discount.
At fifty cents on the dollar, even very low income home buyers can afford to buy a home.
5. Down payment assistance programs
Most homeowners don’t realize that 87% of homes in the United States qualify for some kind of down payment assistance.
This astounding statistic from the real estate data website RealtyTrac should be a massive encouragement for low income homebuyers.
City and state programs, as well as organizations nationwide, provide many types of assistance. Some grants do not even need to be repaid.
Many renters assume that they will never be able to save enough money for a down payment. Well, they might not have to.
Down payment assistance programs (PADs) are increasingly popular in today’s home buying market. Lenders and agencies are relaxing the rules on them, when just a few years ago it was difficult to find a lender who would accept a PAD.
Check the Housing Assistance section of your state and city website. You might be surprised to find that there are thousands of dollars waiting to be used.
How do I apply for a low income home loan?
Your income is only a secondary factor when it comes to approving a loan. The lender will place much more importance on your monthly debt, credit score, and other factors.
You CAN buy a house, even without an exorbitant income.
Get a personalized home purchase eligibility analysis now. There is no obligation to continue, and you might be surprised at what you can expect.
Check Your Mortgage Eligibility (Jul 23, 2021)