5 Home Loan Options for Low-Income Families

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Many low-income families think they can’t afford to buy a home. 

Low mortgage interest rates have made homeownership more accessible for some, but low-income families sometimes lack the upfront cash needed for a down payment and the closing costs associated with buying a home.  

But experts say there are an array of home loan products that can meet each person’s financial situation. “Potential homebuyers with low income may qualify for more loan programs than they might think,” says Andrina Valdes, COO of Cornerstone Home Lending in San Antonio.  

Just because your income is on the lower end, “don’t lose hope of owning a house. There are multiple ways for low-income [individuals] to buy a house,” says Shad Elia, CEO of WeBuyHousesHere.com, a real estate investment firm in Massachusetts.  

As with any important financial decision, these options come with potential downsides, too. Here is a breakdown of popular low-income loan options and what to know about each. 

Some Low Income Loans Will Cost You More

Just because you qualify for a low-income loan doesn’t mean it’s the best choice. Consider whether the program you qualify for requires mortgage insurance, and if it does, find out if it is cancelable. Mortgage insurance can cost up to $4,000 per year in addition to your mortgage payment. 

Pro Tip

If you are required to pay mortgage insurance, find out if it is cancelable after you reach 20% equity. If not, you may want to consider other options.

Take into consideration that a lower down payment (or no down payment) means you will pay more for your house over time. The lower the amount put down means the higher the remaining balance you will pay interest on. 

Be prepared for the cost of closing too. Closing costs cover the taxes and fees associated with a home purchase. 

Before committing to any loan, it’s key that you calculate your monthly payments to make sure this option will work for you in the long term. 

Low-Income Home Loan Options

USDA Loan 

Best for: 

  • Homebuyers willing to live in a rural area.
  • People with low-to-moderate income.
  • People who cannot afford a down payment.


The intent behind USDA loans, provided by the U.S. Department of Agriculture, is to revitalize rural communities while also offering a path to homeownership. Since homes in rural areas tend to cost less than dense urban areas, they are more affordable. USDA loans provide competitive interest rates, but the higher your credit score, the better the rate. 


USDA advertises lenient eligibility requirements. To best qualify,

  • Stable income
  • U.S citizenship
  • Preferable credit score of above 640.
  • USDA qualified “rural area” typically with populations under 35,000.
  • Single-family home
  • Primary home (not used as a second home or used to generate income). 
  • Qualify within the USDA loan income limits:
    • 1-4 adult member household with a combined income of $90,300.
    • 5-8 adult member household with a combined income of $119,200.
    • The USDA offers this income limit chart to help prospective buyers determine income limits in specific areas and income deductions.


  • Mortgage insurance is required  through the loan’s life and is not canceled after 20% equity like other loan options.

VA Loan

Best for: 

  • Veterans or active-duty service members and their families. 


Backed by the Department of Veterans Affairs, VA loans help veterans gain homeownership with competitive rates, flexible credit requirements, no down payment, and low closing costs. VA Loans also do not require mortgage insurance, making them a viable option for military families. 



FHA Loan

Best for:

  • First-time home buyers
  • Those with lower credit scores 
  • People with less than 20% for a down payment.  


The Federal Housing Administration (FHA) backs lenders that provide home loans a 15 and 30-year fixed rate, flexible credit requirements, and a minimum down payment as low as 3.5%. 


  • Credit scores in the 500-579 range, a 10% down payment is needed. 
  • Credit scores above 580 may qualify for 3.5% down. 
  • Debt-to-income ratio below 43%
  • Proof of stable income 
  • Home purchase is a primary residence.


  • FHA loans require mortgage insurance.
  • Mortgage insurance cannot be removed unless you refinance into a conventional mortgage.   

HomeReady and Home Possible Mortgages

Best for:

  • Low-income buyers who have limited cash for a down payment. 


HomeReady (through Fannie Mae) and Home Possible (through Freddie Mac) are private conventional loans – not government loans – where private lenders offer up to 97% financing, which equates to a 3% percent down payment to qualified borrowers. 


  • First-time homebuyer
  • Primary residence
  • Single-family homes, multi-unit properties, and condominiums allowed. 
  • Stable income
  • Credit score must be at or above 620
  • Credit scores at or above 680 may get better pricing. 
  • Income limit of less than 100% of the area median income (AMI) with some exceptions.


  • Private mortgage insurance is required but at a reduced rate but can be canceled once 20% equity is achieved. 

Good Neighbor Next Door

Best for:

  • Those in community-based careers such as teachers, firefighters, EMT’s, and law enforcement. 


Loan program offers up to a 50% discount on HUD (U.S Department of Housing and Urban Development) homes. 



  • Only select professions qualify
  • Limited home options
  • Three-year residency requirement

Advice for Low-Income Homebuyers   

  • Improve your credit. “Work on improving your credit score,” says Valdes.  “A credit score is a good indicator of your ability to make payments and greatly impacts the type of loan program you may qualify for.” You can do this by paying bills on time and bringing down your debt, says Valdes.  
  • Decrease DTI ratio. The debt-to-income ratio is important because it compares your debt expenses to your income. A lender wants to make sure you have enough unused income to pay the mortgage. You can calculate your DTI ratio by adding your monthly debt payments (credit cards, investment loans, car payments, ect) and divide that number by your monthly gross income (income before taxes) to get your DTI ratio. If that number is higher than 36 percent, you should try to decrease the ratio by paying more toward your monthly debt.  
  • Create a budget. Low-income loan options may look good on paper, but make sure you don’t buy into a house you can’t afford. Create a realistic budget and make sure to factor in all the housing expenses of homeownership.
  • Get preapproved. “It’s always a great idea to check in with a loan officer and get prequalified,” says Valdes. “You won’t know how much house you can potentially afford until you try.” Getting preapproved before looking for houses will make the process easier by letting you, the lender, and realtor know how much you’re able to borrow. This step will set your price range and help determine what type of loans you could apply for. 
  • Find a reliable realtor and lender. Shop around for a reliable selling agent and lender that you can trust to consider your affordability limitations. Before choosing a lender, ask if they’re approved to offer the low-income loan you’re interested in obtaining. 
  • Try using a housing counselor. “A housing counselor may impose a small fee. However, he or she can walk you into your federal, state, and local home buying program benefits, and they are a wealth of information,” says Elia. “A good housing counsellor can help you come up with a housing allowance and more. ”You can find a HUD-sponsored counseling agency here
  • Research available grants in your area. There are many types of grants available to homebuyers, ranging from HUD grants, federal grants ,and first-time homeowner grants. Typically, the grants will work in conjunction with your loan, and they will help with your down payment.  “Ask your loan officer about down payment assistance. There are numerous programs available in local areas, some of which include grants for down payments that may not need to be paid back,” says Valdes.