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

While buying a home is challenging for anyone, doing so with a low income can be even more difficult. Fortunately, there are loan options and assistance programs designed to help buyers with lower incomes afford a home.

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

Borrowers with lower incomes or low credit scores might find it challenging to qualify for a mortgage. But that doesn’t mean homeownership is out of reach. Choosing the right loan can make buying a home more affordable.

Conventional loans

Conventional loans are issued by private lenders and are not insured by the federal government. Conventional loans come in two types: Conforming loans, which meet requirements set by the Federal Housing Finance Agency, and non-conforming loans, which do not. FHFA requirements establish a minimum down payment, minimum credit score, and maximum debt-to-income ratio that borrowers must meet. The FHFA also sets a maximum loan amount for conforming loans, with a 2025 baseline rate for a 1-unit home of $806,500 for most parts of the country and $1,209,750 in high-cost areas.

A 30-year fixed-rate conforming conventional loan is the most common mortgage in the United States. Conventional loans usually cost less than government-backed loans but are more challenging to qualify for.

Eligibility requirements:

• A credit score of at least 620 or above
• A DTI ratio below 50% (though some lenders have stricter limits, as low as 36%)
• A 3% down payment for a fixed-rate loan and 5% for an adjustable-rate loan
• Must pay private mortgage insurance if your down payment is less than 20% of the purchase price.
• Closing costs of 3% – 6% of the purchase price

Federal Housing Administration loans

FHA loans are designed to help home buyers – first-time buyers in particular – with a lower credit score afford a home. The FHA insures mortgages that meet its requirements, which reduces the risk lenders take in issuing these loans. FHA loans usually have more flexible eligibility requirements, which can be helpful for low-income borrowers.

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 3% – 6% of the purchase price

Veterans Affairs loans

VA loans are available only to military personnel, veterans, and their surviving spouses. Because these loans are guaranteed by the VA, eligible buyers can qualify with a low or no down payment and lower interest rates.

While approval requirements can vary from lender to lender, you'll generally need to meet the following criteria to qualify.

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%
• Borrowers usually 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 help borrowers with low to mid-level income buy a home in specific rural areas.

While Rocket Mortgage doesn’t currently offer USDA loans, we can guide you through your home financing choices to find the right fit.

Like other government-backed loans, the USDA guarantees these mortgages, which in turn encourages lenders to approve borrowers with limited savings or less-than-perfect credit. Interest rates on USDA loans are often lower than those on conventional loans, and no down payment is required.

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)
• A willingness to use the home as your primary residence

HomeReady And Home Possible Loans

Fannie Mae’s HomeReady and Freddie Mac’s Home Possible are conforming conventional loans with a few added advantages for low-income borrowers. Similar to how government-backed loans work, these programs are backed by Fannie Mae or Freddie Mac, which helps lenders offer more flexible terms. Both loans have income limits borrowers must meet to qualify.

HomeReady loans also have a 3% minimum down payment, offer a $2,500 borrower credit toward the down payment or closing costs, flexible underwriting requirements, and affordable mortgage insurance.

Home Possible loans also allow a 3% down payment, affordable mortgage insurance, and flexible sourcing of down payment funds.

Eligibility requirements:

• A credit score of at least 620 for HomeReady, or 660 for Home Possible
• Complete a homeownership education course
• 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

Home buyer assistance programs offer a little extra support when buying a home. These programs provide grants, forgivable loans, and educational opportunities that can help make buying a home a bit more manageable.

One+ by Rocket Mortgage

One+ by Rocket Mortgage allows eligible buyers to buy a home with only 1% down. Rocket Mortgage provides a 2% grant to bring the down payment to 3%. This program can reduce your upfront costs, making homeownership more accessible if you don’t have a large down payment saved.

Eligibility requirements:

• A FICO® Score of at least 620
• A median income of 80% or less for the area where you're buying
• Maximum loan of $350,000

You can combine One+ with the BUY+ program through Rocket Homes℠. If you work with a Rocket Homes Partner Agent, Rocket Mortgage may offer you a lender credit toward closing costs worth up to 1.25% of your loan amount, capped at $10,000.

For example, if you’re buying a $300,000 home and put 5% down – that’s $15,000. Your loan amount would then be $285,000. With this 1.25% lender credit, you’d get $3,562.50 to help pay for your closing costs.

Housing and Urban Development homes

The Department of Housing and Urban Development offers a less traditional – yet potentially more affordable – path to homeownership.

A HUD home is a property where the borrower defaulted on their FHA loan, and the government foreclosed it. HUD then sells the homes to recover some of its losses. These homes are typically listed below market value, making them a good option for budget-conscious buyers.

One drawback of a HUD home is you’re buying a house as-is, meaning no repairs are made before closing. While the lower price is often appealing, you’ll need to factor in potential repair costs. A home inspection is an essential step when buying a HUD home, allowing you to fully understand the home’s condition before you purchase it.

You can visit the HUD Homestore website to find available homes.

Housing Choice Vouchers

The Housing Choice Voucher program – also known as Section 8 – provides rental assistance to low-income families and is managed by roughly 2,000 local public housing agencies nationwide.

If you qualify, you'll receive a voucher to offset your rental costs. The program also includes a homeownership option in some areas, allowing eligible families to use their vouchers to buy a home instead of renting. If you're interested in this option, check with your local housing agency to see if it's available in your area.

To qualify, you’ll need to meet income limits and other criteria set by your housing agency. If you're younger than 62 or don’t have a qualifying disability, you’ll also need to meet employment requirements. Additionally, you must be a first-time home buyer and complete a homeownership counseling program.

To find your local housing agency, you can visit HUD’s Public Housing Agency Directory.

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 at a 50% discount.

If you find a home you’re interested in, you’ll need to meet the program’s requirements for your profession and commit to living in the home for at least three years.

However, inventory is usually limited. At the time of publishing, only a few states had homes available. You can browse current listings on the HUD Homestore site to see what’s available in your area.

State and local home buyer assistance programs

State or local housing agencies offer many types of down payment assistance, including grants or forgivable loans 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, which can provide a tax credit for a portion of the mortgage interest paid – potentially reducing your overall tax bill.

Rocket Mortgage currently does not issue or reissue mortgage credit certificates.

5 tips for buying a house with 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 getting a lower interest rate. If your score is lower than that, you can build it up by making on-time payments and paying down existing debt. Improving your credit can take time, but it can save you a lot of money on your loan in the long run.

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. In addition to your monthly mortgage payment, you’ll need to be ready for expenses like closing costs, homeowners insurance, property taxes, and ongoing maintenance and repairs.

3. Save for a down payment and closing costs

You’ll need to determine how much to save for your down payment. 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.

4. Use a co-signer

If you’re having a difficult time getting approved for a loan, you may want to consider asking someone to co-sign your mortgage. This means the lender will evaluate both your and your co-signer’s financial and credit information to determine whether to approve your home loan application. Remember that if someone co-signs your loan, they’re responsible for the payments if you can’t make them. Be sure to discuss expectations and establish some backup plans together.

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. One strategy to consider is consolidating your debt into a single loan with a lower interest rate. Then, you can use the money you save each month to make extra payments and pay off more debt.

FAQ

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. Comparing your options and approval requirements can help you find the most suitable solutions for your home buying needs.

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. Some lenders may accept lower scores, depending on the situation. Requirements vary by lender and loan type, so be sure to review all eligibility criteria carefully before applying.

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.

How 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 obstacles, low-income borrowers can find a loan and a home that fits their budget. As you prepare for homeownership, explore all your options and read up on how the home buying process works. With proper preparation and persistence, you can make homeownership a reality.

Ready to begin? You can start your mortgage application online with Rocket Mortgage. You can also call us at (833) 326-6018.