Buying a house with low income: Loan options, assistance programs, and tips

If you have a lower income, homeownership may especially feel like a Herculean goal. The good news is there are loan options and assistance programs designed to help you afford a home and turn your dream of having the house keys in hand a reality.

Key takeaways:

• If you can’t qualify for a conventional loan, consider government-backed mortgages such as an FHA loan, which has more flexible requirements.
• Home buying assistance programs can help borrowers afford the down payment and closing costs required to buy a home.
• You can improve your ability to qualify for a mortgage by improving your credit score, knowing how much you need saved up, and considering a co-signer.

Home loans for low-income borrowers

The right home loan can make buying a home more affordable – and a tangible possibility. To help you get started, you can use a home affordability calculator to help you land on what's within your means and what you can prequalify for.

Federal Housing Administration loans

FHA loans are designed to help home buyers – particularly if you're a first-time home buyer – with lower credit scores afford a home.

Eligibility requirements:

• A credit score of 580 or higher with a 3.5% minimum down payment
• A credit score between 500 – 579 with a 10% minimum down payment
• DTI ratio below 43%
• Proof of steady income or employment
• Closing costs of 2% – 6% of the purchase price

Veterans Affairs loans

VA loans² are availableonly to military personnel, veterans, and their surviving spouses. Because the VA guarantees these loans, if you're eligible, you can qualify with a low or zero down payment and lower interest rates.

Eligibility requirements:

• You must have a VA Certificate of Eligibility that shows you meet the minimum military service requirements.
• The VA does not require a minimum credit score, but lenders often set their own requirements. Rocket Mortgage, for example, may accept a minimum credit score of 580.
• A DTI ratio below 41%
• You must pay a VA funding fee that varies depending on your down payment and whether this is your  first VA loan.

U.S. Department of Agriculture loans

USDA loans assist borrowers with low- to mid-level incomes to buy a home in specific rural areas. Note that while Rocket Mortgage doesn’t currently offer USDA loans, we can guide you through your home financing choices to find the right fit.

Eligibility requirements:

• A credit score of 640 or higher (lower scores may still be considered)
• A steady income below the program’s income limits for your area
• A home located in a USDA-eligible rural or suburban area (you can check the eligibility map here)
• Intend to use the home as your primary residence

HomeReady and Home Possible loans

Fannie Mae’s HomeReady and Freddie Mac’s Home Possible¹ are conforming conventional loans – with a few added advantages tacked on for low-income borrowers.

Eligibility requirements:

• A credit score of at least 620 for HomeReady, or 660 for Home Possible
• Complete a homeownership education course
• No more than 50% DTI for HomeReady (no more than 43% for Home Possible)
• Home must be principal residence
• A household income at or below 80% of the area median income in the area where you’re buying a home

Home buying assistance programs

Other options if you have lower income are home buying assistance programs. These programs offer grants, forgivable loans, and educational opportunities that can help make buying a home a greater possibility.

One+ by Rocket Mortgage

If you're eligible, One+ by Rocket Mortgage³ enables you to purchase a home with as little as 1% down. Rocket Mortgage offers a 2% grant to help cover the down payment, bringing it down to 3%. These mortgages are a 30-year fixed rate.

Eligibility requirements:

• A FICO^® Score of at least 620
• A DTI of no more than 50%
• A median income of 80% or less for the area where you're buying
• A maximum loan of $350,000

Housing and Urban Development homes

A HUD home is a property where the borrower defaulted on their FHA loan and the government foreclosed on it. These homes usually are sold well below market price, favor owner-occupants over investors, and you can benefit from different home-buying assistance programs.

However, you'll need to bid on the home and submit your bid through a HUD-registered selling broker.

During the initial listing period, only owner-occupants, HUD-approved nonprofits, and governmental entities can bid on a HUD home. And because HUD homes are sold "as is "after foreclosure and may require additional repairs, it's a good idea to get a proper home inspection before purchasing the home. 

Housing Choice Vouchers

The Housing Choice Voucher program, also known as Section 8, provides rental assistance to low-income families, veterans, disabled individuals, and the elderly. It's managed by approximately 2,000 local public housing agencies nationwide.

Eligibility requirements:

• Meets the HUD income limits
• Be a U.S. citizen or an eligible non-citizen (per HUD)
• Head of household needs to have a Social Security number
• Some criminal activity might make someone ineligible

Good Neighbor Next Door

Good Neighbor Next Door is a HUD program that helps law enforcement officers, teachers, firefighters, and emergency medical technicians buy an eligible HUD home in a designated revitalization area. If you qualify, you get a discount of up to 50% of the price of the home.

Eligibility requirements:

• Need to live in the home for at least 36 months as the principal residence
• Buy a home listed in a revitalization area that's part of the Good Neighbor Next Door program
• Sign a second mortgage for the discounted amount

State and local home buyer assistance programs

State or local housing agencies offer many types of down payment assistance. These include grants or forgivable loans that buyers can use for a down payment or closing costs. Local charities and nonprofit organizations also might provide support for homeownership.

It’s also worth checking whether your state offers a mortgage credit certificate program. This can provide a dollar-for-dollar tax credit for a portion of the mortgage interest paid – potentially reducing your overall tax bill and making homeownership more feasible.

Currently, Rocket Mortgage doesn't issue or reissue mortgage credit certificates.

5 tips for buying a house when you have a low income

Here are five ways you can improve your finances so you’re ready to buy a home.

1. Improve your credit score

A credit score of 670 or higher improves your chances of getting approved for a mortgage and of securing a lower interest rate. If your score is lower than that, you can build up your credit by making on-time payments, paying down existing debt, and keeping your credit usage low. Improving your score isn't an overnight process and takes time. By slowly you'll be able to gradually improve it.

2. Outline a budget

Knowing how much you can afford to spend each month on housing can help you avoid stretching your budget too thin.

Besides your mortgage, you'll need to factor in 3% to 6% of the loan amount for closing costs. You'll also need to include homeowners insurance, property taxes, maintenance and repair, and some savings for emergencies. It's generally recommended to save 1% to 4% of the value of your home for maintenance and repairs.

3. Save for a down payment and closing costs

If you're eligible for a low-down-payment loan, you may only need 3% to 3.5%. You'll also need to budget for at least 3% to 6% of the loan amount for closing costs. Closing costs typically include settlement and title fees, origination fees, taxes and government fees, and third-party fees.

To figure out how much cash you need to stash away to buy a home, you can use a down payment calculator. This can help you estimate your down payment and closing costs.

4. Use a co-signer

If you're having a tough time getting approved for a loan, you may want to consider asking someone to co-sign your mortgage. When you get a co-signer, they are financially on the hook for making payments if you fall behind on your monthly mortgage.

This could be a good move for you if you have a thin credit profile, have less-than-stellar credit, or lack steady income. However, the co-signer needs to be fully aware of their responsibilities, financial obligations, and potential risks before agreeing.

5. Pay off debt

Lowering your total debt can improve your DTI ratio, which can help you qualify for a mortgage and borrow a larger amount. When you have a lower DTI ratio, you're seen as a lower risk to lenders. That's because you have a lower DTI, that's less of your money that you pay each month to lenders. In turn, you'll have more funds freed up to put toward other things.

Aim to make extra debt payments by putting aside your extra payments or cash earned from side gigs. Try not to add any more to your existing credit card balance, and consider using the snowball or avalanche debt payoff method.

FAQ about home buying with a low income

Here are answers to common questions about buying a home with a lower income.

Can I get a mortgage with a low income?

Yes. However, you’ll need to meet specific requirements, such as proving you have a stable income or job history, a manageable debt load, and a strong credit score.

What programs help low-income buyers buy homes?

Loan options, such as FHA loans, VA loans for military personnel and veterans, and local or state down payment assistance programs, can help low-income buyers purchase homes.

What credit score do I need to buy a home?

Generally, you’ll need a credit score of 620 or higher to qualify for a conventional loan, and at least 500 for an FHA loan if you have a 10% down payment. You'll need a credit score of at least 580 if you have at least a 3.5% down payment.

How much do I need for a down payment?

Your down payment requirement will depend on the type of loan you choose. For example, FHA loans may require as little as 3.5% down, while conventional loans require 3%, and VA loans require no down payment.

Can I improve my chances of getting approved for a mortgage with a low income?

You can improve your chances of getting a home loan by improving your credit score, paying off debt, and comparing your mortgage options. A co-signer also may improve your odds of getting a loan.

The bottom line: Help is available for low-income home buyers

While you may face a few extra hurdles, as a low-income borrower, you can find a loan and a home that fits your budget. As you prepare for homeownership, explore all your options and read up on how the home buying process works. You can start your home buying journey with a Rocket Mortgage application today.

¹To qualify for this offer, you must meet all standard FHA eligibility requirements. In addition, your total mortgage payment, including taxes and insurance, cannot exceed 38% of your income, your debt-to-income (DTI) ratio cannot exceed 45%, and you must have 12 months of verifiable housing history immediately prior to your application, no late payments 30 days or greater in the last 12-months, and no derogatory marks on your credit report. Not available on jumbo loans. Asset statements may be needed, no more than 1 day of non-sufficient fund fees are allowed in the most recent 2 months prior to application. Additional restrictions/conditions may apply.

² Rocket Mortgage is a VA-approved lender, not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency.

³Client will be required to pay a 1% down payment, with the ability to pay a maximum of 3%, and Rocket Mortgage will cover an additional 2% of the client’s purchase price as a down payment, or $2,000. Maximum grant amount is $7,000. Offer valid on primary residence, conventional loan products only. Maximum loan amount of $350,000. Cost of mortgage insurance premium passed through to client effective January 2, 2024. Offer valid only for home buyers when qualifying income is less than or equal to 80% area median income based on county where property is located. Not available with any other discounts or promotions and cannot be retroactively applied to previously closed loans or loans that have a locked rate. This is not a commitment to lend. Rocket Mortgage reserves the right to cancel/modify this offer at any time. Additional restrictions/conditions may apply.

⁴Client will receive a 1 point (1.000) loan level price adjustment (LLPA) credit on HomeReady and Home Possible purchase loans locked on or after January 2, 2024. One point (1.000) is equal to 1% of the loan amount. Minimum credit amount will be $2,000. Maximum loan amount is $350,000. Offer is not available with any other discounts or promotions. Offer cannot be retroactively applied to previously closed loans or loans already in process; offer is not transferable. Rocket Mortgage reserves the right to cancel/modify this offer at any time. Additional restrictions/conditions may apply. This is not a commitment to lend.

Rocket Mortgage (or Rocket Loans, whichever you're working on) is a trademark of Rocket Mortgage, LLC or its affiliates.