How to buy a house with low income

Buying a house with a low income can feel like an uphill battle from the start. When you’re juggling everyday expenses, saving for a down payment and getting a lender to say yes may seem downright impossible. But with some creativity, persistence, and a good grasp of the programs and options out there, owning a home on a smaller paycheck may be more realistic than it sounds.

Yes, there are loan programs and other forms of assistance that can help make your homeownership dreams a reality, even with a low income.

However, before applying, consider improving your credit score and reducing your debt load if necessary.

It’s also important to calculate how much home you can realistically afford and build up your savings. These actions may require some time and effort, but they can help increase your chances of getting approved for a mortgage with competitive terms.

Lenders assess your creditworthiness to determine whether to approve you for a mortgage and, if so, at what interest rate. They also set a minimum credit score requirement for mortgage approval. So, you want to know your score before shopping for a mortgage to avoid any surprises during the application process.

A high credit score could increase your chances of approval, even if your income is low.

Check your credit score with the credit bureaus Equifax, Experian, or TransUnion. If you notice any errors on your credit report, report them so that your credit score can be corrected. You can also work on improving your credit score by paying down debts or making on-time monthly payments. The higher your credit score, the better deal you’ll get from a mortgage lender.

Lenders also assess your debt-to-income ratio (DTI), which is the minimum amount of debt payments you owe each month compared to your monthly pre-tax income. When it comes to your DTI ratio, there are two numbers you should understand:

Front-end ratio: This number represents the percentage of your monthly income that specifically goes toward home expenses. Divide your total monthly housing expenses by your total gross monthly income to get your front-end ratio. For conventional loans, mortgage lenders often prefer a front-end DTI ratio of 28% or less.
Back-end ratio: The back-end DTI ratio refers to how much you spend on all monthly debt payments (including your mortgage) compared to your monthly income. Divide your minimum monthly debt obligations — on your home, car, and credit cards, for example — by your monthly income. The sweet spot is 36%, but some lenders accept DTIs as high as 50%, depending on the loan program.

The 28/36 rule is a popular DTI ratio calculation for lenders, but it’s not a hard and fast rule. The lower your ratio, the more likely a mortgage lender will approve you for a mortgage, even if you don’t have a high income.

To lower your ratio, pay down some debts or increase your earnings before applying for a mortgage loan.

If your credit score and DTI ratio are in good shape, the next step is to figure out your home-buying budget. Use a calculator to determine how much house you can afford. Beyond the monthly mortgage payment, which includes principal and interest, be sure to account for the following costs:

Utilities, maintenance, and repairs don’t make up your monthly mortgage payment, but you should still factor in these costs when deciding whether you can afford to buy a home on your income.

Along with the down payment and closing costs, take a look at your monthly budget to determine how much you can afford to spend on housing-related expenses. If you don’t have a budget yet, reviewing your most recent bank statements is a good place to start until you can establish a spending plan.

4. Save for the down payment and closing costs

Now that you’ve done the math to get a sense of your budget, start saving for the down payment and closing costs so you can comfortably afford a home.

Again, you’ll likely need a down payment unless you qualify for a 0%-down mortgage, such as a VA or USDA loan. Thankfully, the days of having to put 20% down to buy a home are long gone, and there are options that require as little as 3% down.

Not sure where to start? Create a realistic savings plan based on the disposable income in your budget. And again, don’t forget about closing costs, which typically range from 2% to 5% of the loan amount.

5. Shop for a loan and mortgage lender in advance

Research the best mortgage lenders for your specific situation and priorities. Reach out to a loan officer with several lenders well in advance to discuss your situation. They can review your profile and determine if you prequalify for a mortgage, and if so, what loan amount and terms the company could offer you.

That way, you can identify areas that need improvement to get approved if you don’t yet qualify, or to get a loan offer with competitive terms and a low mortgage rate.

If your income is too low to secure a mortgage on your own, consider adding a co-signer to your mortgage. When you apply, the lender will consider the financial and credit profiles of both you and the co-signer to make a decision. Co-signing with a loved one who has a higher income and a strong overall financial profile can help you qualify.

Keep in mind that co-signers share equal responsibility for the home loan. Therefore, if you default on the mortgage payments, you must continue making payments to keep the loan in good standing. Communicate to ensure you’re both comfortable with the arrangement.

If you think the mortgage preapproval process is just about getting a letter in hand, think again. “For lower-income buyers, the preapproval process is about clarity, confidence, and choice,” said Jen Poniatowski, senior vice president of Mortgage Growth & Market Development at Key Mortgage Services.

By getting preapproved with multiple lenders, you can see what kind of rates, loan products, and terms are out there. Then you can move forward with confidence with the lender of your choice, knowing you have all the information you need to select the loan that fits your finances and goals.

So, how do you know when you’ve found a lender that sparks confidence? Poniatowski offers these questions to consider when comparing lender experiences side by side.

Is the lender strategic? The best mortgage lenders focus on the monthly payment and not just the home price. They also help borrowers test different payment scenarios to find the best fit for their budget.
Does the lender offer choices? The best lenders will walk you through multiple loan products, down payment options, and assistance programs early in the process.
Does the lender help troubleshoot? If you have limited savings or non-traditional income, you want a lender who can identify potential qualification hurdles up front and craft a plan to overcome them.

MORE: See the mortgage lenders with the best interest rates this week.

Contact housing agencies in your state and local area to learn more about programs designed to assist low-income and first-time home buyers. You may be eligible for grants or other forms of assistance to help cover the down payment and closing costs.

The Housing Choice Voucher (HCV) homeownership program is also available in select markets nationwide. If you are a current Section 8 voucher holder, you can use it to buy a home and receive monthly payment assistance. Contact your local housing authority to learn more.

Some mortgage lenders, including Rocket Mortgage and New American Funding, also offer programs to assist low-income borrowers. It’s worth inquiring with your chosen lender, as they may also have resources available to help you get into a new home.

One of the most popular mortgage products for lower-income buyers is the FHA loan. Insured by the Federal Housing Administration, these loans offer a variety of features that lower-income buyers value, including flexible credit qualifications and low down payment requirements.

Eligible active-duty service members, veterans, and surviving spouses have access to VA loans backed by the U.S. Department of Veterans Affairs.

For a lower-income buyer, the VA loan is the real deal. There’s no private mortgage insurance requirement like with an FHA loan, and you can put $0 down and walk into your brand-new home. Keep in mind that there is a VA funding fee, but it’s possible to roll that fee into your loan balance.

If you’re looking to buy in a more rural area, it’s worth checking into USDA loans backed by the U.S. Department of Agriculture. While these loans do have geographic restrictions and income limits, they offer below-market interest rates and come with a true $0 down payment. It’s important to note that there is a 1% up-front guarantee fee (which you can roll into your loan balance) and an ongoing annual fee of 0.35% (paid with your monthly mortgage payment).

While all USDA loan programs offer great terms for low-income borrowers, the USDA Direct Home Loan program can have interest rates as low as 1% if you qualify for payment assistance.

If you’re a law enforcement official, full-time pre-K through grade 12 teacher, firefighter, or EMT and haven’t owned a home within the past year, HUD’s Good Neighbor Next Door program might be for you. Homes purchased through this program are terrific for low-income borrowers and can help you score a 50% discount on a HUD-owned home if you buy during the first seven days that it’s listed. However, you must agree to maintain it as your sole and primary residence for at least 36 months.

These HUD homes aren’t available everywhere, and you’ll need to bring your own financing to the table. Many buyers use an FHA loan, and for good reason. With a credit score of 580, your down payment is a mere $100.

HomeReady and Home Possible loans

Fannie Mae’s HomeReady and Freddie Mac’s Home Possible loans break down many barriers for low-income home buyers. Both programs require just 3% down on conventional loans. You can also use gifts and grants to help cover the down payment and closing costs. Fannie Mae’s program also offers up to $2,500 in down payment or closing cost assistance for qualified buyers.

Is there a way to save even more on these loan options?

“In some cases, lenders will offer grants attached to these programs to help offset a buyer’s out-of-pocket costs, as loanDepot does with its AccessONE program,” Scott Snapp, a branch manager with loanDepot, said via email. This program provides a 2% grant (capped at $3,000) for those who qualify. “That 2% grant can essentially allow you to purchase a home with just 1% down,” Snapp said. A handful of other mortgage lenders also offer 1%-down-payment programs.

These loans do have income limits that vary based on where you want to buy a home. You can easily see if you qualify income-wise using Fannie Mae’s or Freddie Mac’s lookup tools.

Did you know that your state might have a loan program designed exclusively for low-income home buyers? Housing finance agency (HFA) loans are backed by Fannie Mae and Freddie Mac and offered by specialized state programs. HFA loans also require just 3% down, and you can get assistance with down payment and closing costs.

There isn’t a specific minimum income requirement you must meet to qualify for a mortgage. That said, lenders have other guidelines that determine your eligibility, and an income that is too low could mean your debt-to-income ratio is too high to qualify.

Maybe, but it’s going to come down to the details. Lenders don’t just look at what you earn; they look at what you owe. If a big chunk of that $3,000 is already going toward other bills like rent, car payments, student loans, or credit cards, your buying power shrinks fast. On the flip side, low debt and steady income can open doors, especially in more affordable markets. For many buyers at this income level, purchasing a home means being flexible on location, home type, and size, and the kind of loan they use.

It’s tough, but it isn’t impossible. At $25,000 a year, whether buying works often depends on where you live and what support programs are available. In lower-cost areas, some buyers lean on first-time home buyer programs or down payment assistance to make the numbers work. Keeping debt low and having a consistent income matters more than people realize. In reality, though, many buyers at this income level end up waiting, boosting savings, or starting with a very modest home before moving up later.

Laura Grace Tarpley edited this article.