It's tough out there in the housing market for people with lower incomes. Fortunately, there are loan options available that can help.

Here are ten mortgage programs meant to help low-income home buyers:

1. HomeReady and Home Possible mortgages

These loan programs, offered by mortgage giants Fannie Mae and Freddie Mac, offer as low as a 3% down payment, and none of that down payment is required to come from the loan applicant themselves. If needed, they can get funding from a gift, grant, or other approved source. The seller is even allowed to cover the closing costs up to 3% of the home's price.

Another benefit of these loans is that private mortgage insurance, or PMI, could be discounted, saving you hundreds on your monthly mortgage payment.

The bottom line is that these loans are highly flexible and ideal for low-income buyers. You can even add a renter to your application for better chances of qualifying. You have a good chance of qualifying if your credit score is above 620 and your income is below your area's income limits.

2. USDA (Rural Housing) mortgages

USDA loans don’t require a downpayment, however, there are eligibility requirements such as the home must be located in a designated rural area. See the USDA's property eligibility map to review eligible areas.

These loans are also commonly referred to as Rural Development Loans, or USDA Guaranteed Loans. Its a great option for low-income families living in rural communities as it does not require a downpayment and has attractive financing terms. An additional bonus is that only a credit score of 640 is usually required for this loan.

There are two types of USDA loans. The first one is the Guaranteed Program, which is for buyers who earn up to 115% of the local Area Median Income (AMI). The Direct Program is for people with incomes between 50% to 80% of the area median income, and the borrower must directly work with the US Department of Agriculture.

3. VA home loans

If you are a veteran or an active military member, this might be the loan for you. Perks include zero down payment, no monthly mortgage insurance (which can save you a lot of money per month), and the seller is able to pay most or all of your closing costs. VA loans are also more flexible on debt-to-income ratio and okay with lower credit scores.

To qualify, you must have US military service experience that includes:

·   If currently an active duty member, 90+ days in wartime or 181+ days in peacetime

·   If a veteran, you must have served either 24 months, the entire period you were ordered to serve, or six years if service was in the Reserves or National Guard

4. FHA home loans

FHA loans are another government-backed type of loan that assists people with lower incomes in buying a house. Here are some benefits of FHA loans:

·   Minimum 3.5% down payment, which can be gifted to you

·   People with lower credit scores are eligible compared to standard mortgages

·   It's possible the seller can pay most or all closing costs

·   The debt-to-income ratio requirements are more flexible than standard mortgages, making it easier to qualify with a low income.

·   You don't need more money in the bank after you close on the loan.

·   You can have a cosigner, who can be a non-occupant who helps repay the loan.

5. Good Neighbor Next Door

HUD offers a unique loan that allows you to purchase a home at 50% of the purchase price. These loans are typically reserved for individuals employed in the public service sector. This includes but is not limited to police officers, firefighters, teachers, and other professions that serve the betterment of the local community.

To apply, visit the HUD website, find a home, and make an offer. It is based on a lottery system so applicants for the program are selected at random. If you're approved, the next requirement is that you provide valid proof you are employed in the public sector. From there, HUD essentially assumes a 2nd mortgage on your property amounting to 50% of its value.

There are numerous ways to finance this loan but the most attractive options is utilizing an FHA loan which only requires a $100 downpayment.

6. Housing Choice Voucher (HCV) Program

This program provides qualified low-income households with rental and home buying assistance. This is also known as Section 8 housing and lets home buyers use the vouchers to buy a home. Local public housing agencies provide HCVs, thus, qualifications for the vouchers vary depending on where you live. Some standard requirements, however, include:

·   Program-specific employment and income

·   You must be purchasing a home for the first time

·   Must have completed a pre-assistance counseling and homeownership program

Not all states have these programs and some of the states that do have very long wait lists.

7. HFA home loans

HFA loans are provided through partnerships with local and state Housing Finance Authorities. Insured by Freddie Mac and Fannie Mae, these loans often require only 3% down and can be used along with other down payment assistance funds. Discounted interest rates and mortgage insurance premiums may be available as well. Requirements to qualify vary, but typically you need at least a 620 credit score.

8. Down payment assistance programs (DPA)

There is endless down payment assistance programs nationwide. There are programs offered at the national, state, city, and county levels and even private and non-profit organizations that have various funding programs offering downpayment assistance. These funds are earmarked for homeownership programs because it has been shown that homeownership improves the vitality of neighborhoods.

9. Mortgage Credit Certificates (MCCs)

These certificates come in the form of a tax credit equal to a percentage of your home loan's interest rate. You must meet income requirements to qualify. Lenders can add this credit when they are underwriting your loan, making you able to qualify for a larger amount than you would have.

10. Manufactured and mobile homes

Manufactured homes, or mobile homes, are widely available in many areas, resulting in low prices. This makes them an excellent option for those looking to buy a home for less. Though they don't appreciate as much as traditional homes, they are a fantastic option to get into a house. The only caveat is that they must be built after June 15, 1976. Loans won't cover any mobile home build before then.

An FHA loan is likely the easiest route to finance purchasing a manufactured house. The only caveat is that some loans require higher down payments or have stricter terms for mobile homes. Or, some lenders even require the home to be a newly constructed home.

Benefits of low-income home loans

Some benefits of home loans meant for low-income home buyers include:

·   Interest rates and monthly payments below the market rate

·   Mortgage insurance discounts

·   Zero or low down payment

·   Down payment assistance and closing cost assistance through loans and grants

Most programs require aspiring first-time home buyers to complete approved home buyer education and that you plan to live in the home you wish to buy.

A Few Tips for Low-Income Home Buyers

Improve Your Credit Score

Even if you are low-income, having a decent credit score is helpful though not necessarily a requirement. While FHA loans have lower credit score requirements at 500 or 580, most standard loans need your score above 620. If you're below this number, it's best to work on your credit score before applying for a home loan.

If you have any missed payments, focus on paying your debt on time for at least a year. If you are taking advantage of the maximum amount of credit available, consider debt consolidation or paying off a loan entirely.

Save up for a down payment

Even with the low down payment requirements of the loans we discussed, it's still a good idea to save up cash to put down or go towards closing costs, which can be up to 5% of the loan amount. Lenders also like seeing you can save money should you need to tap into your savings to make your payments on time.

Pay your existing debts

If you can, consider paying off existing debt before you take on a home loan. This will improve your debt-to-income ratio, which helps in getting approved for a mortgage. Since your ability to afford you monthly payment is critical in the approval process, its important to make sure your payment is less than 45% of your monthly income. Ideally, housing expenses should be around 30% of your monthly income.

Consider using a first-time home buyer program

Many loan programs are meant for qualified first-time home buyers offering more flexible requirements. These are insured by the government, allowing lenders to be more lenient in their eligibility requirements and provide better interest rates.

Create a budget that includes costs past your monthly loan payments

There are a lot of additional costs in buying a home past the upfront and monthly payments. Some of these include:

·   Property taxes

·   Homeowners insurance

·   Utility service bills

·   Mortgage insurance (in many cases, not all)

·   Home repairs/improvements

If you begin factoring these costs into your budget before you purchase a home, you'll be in good shape for what's ahead when you get the keys to your dream home.

Use a cosigner

Having someone co-sign your loan is a good idea if there are any gray areas in your loan application. This means that you and your cosigner are both responsible for the monthly loan payments.

Low-income home loan FAQs

How do you purchase a home if you have a low income?

Loan options are available for low-income home buyers, including FHA loans, USDA loans, VA loans, and more. Do some research into the best options for your situation.

I make $25K a year. Can I buy a house?

Experts say spending more than 28% of your monthly income on housing is not ideal. If your fixed interest rate was 6% and you put 3% down, you'd have to be roughly making $580 monthly payments on a house costing $100,000.

How do I become eligible for a low-income mortgage?

Each loan program has different eligibility requirements, so look into low-income home loan programs available to you in your area to find one that suits your situation.

What are available first-time home buyer programs?

Some good options are the HomeReady mortgage program by Fannie Mae, the Home Possible program by Freddie mac, as well as FHA, VA, and USDA loans. There are also down payment assistance programs available for first-time home buyers through local and state housing departments.

Can the government help me purchase a home?

In some ways, yes. Down payment assistance programs or government-backed loans like FHA and USDA loans assist people with purchasing a home. Since the government insures these loans, they are easier to qualify for.

How do I purchase a home without proof of income?

Simply put, you can't. You need proof of income to prove you can pay the loan back. There are alternate ways to show income, such as retirement accounts or bank statements, as opposed to showing your tax forms.

What is "rent to own," and how can I do it?

This is when the seller agrees to sell the occupant the home or unit they're renting at a later date. Usually, your rent will increase, and the additional funds go towards a down payment. It might be a good option for those who cannot afford a down payment or need to improve their credit score.

Can I rent to own with no down payment?

No, not in normal circumstances. Usually, renting-to-own comes with a rent increase that includes money that goes towards a down payment at a later date. Rent-to-own contracts also contain an "option fee," which serves similarly to a down payment. It's usually smaller, around 1% of the purchase price, but it still can be a few thousand dollars you need to pay upfront to purchase the home.

Are there grants that can help me purchase a home?

Grants that help eligible buyers buy a house are called down payment assistance programs. These funds won't cover the home's entire cost but will help with a down payment or closing costs. There are more options available for low-income buyers in underserved areas.

What is the easiest home loan to qualify for?

FHA loans are the most accessible mortgages to qualify for because they are insured by the government, allowing lenders to be more lenient in their application requirements.

How can I ensure low monthly mortgage payments?

Some ways to ensure the lowest monthly mortgage payment are finding an affordable home, paying a higher down payment, having excellent credit, and selecting a 30-year loan term. Avoid PMI premiums by putting 20% down up front.

What's the lowest down payment you can make on a house?

With some loans, like VA or USDA, you don't need to put any money down. Standard loans require at least 3% down. FHA loans require 3.5%+ down. However, down payment assistance programs, grants, and loans can help cover down payment costs.

What are the current interest rates for low-income homebuyers?

Many home loan programs for low-income buyers have lower rates than conventional mortgage loans. It depends on your qualifications, the lender, and the program.