Homebuyers with moderate to limited income might be apprehensive about obtaining a mortgage and shopping for a home. However, there are several options for low-income buyers to help them achieve their dream of home ownership. Buyers can usually select one of several methods to keep out-of-pocket costs at a minimum when it comes to signing on the dotted line.
Locate A Home
Local real estate agents have listing information on homes that will fit your budget. Establishing the search criteria is important when beginning your hunt. The number of bedrooms, size, year built and even the school district are important characteristics to look for. It may seem difficult, but finding the perfect home is possible if you keep your expectations realistic and understand that certain improvements can be made after the sale is finalized.
Finding a house that fits your budget is directly related to your buying power. Many lenders may refer to this as your "debt to income ratio." Simply put, this ratio equates to what kind of monthly payment you will qualify for. Once this number is established based upon your income information, you will know what price range you can look in. There are, however, other factors such as credit score and work history that are used to establish eligibility.
Down Payment Assistance
Many community, city, county and state agencies offer down payment assistance programs. These programs usually have unique qualification guidelines, which may focus on income, assets, credit, occupancy and location. There are also numerous nonprofit organizations that assist with down-payment assistance for first-time homebuyers. Check with your local city or county to see if your area offers down-payment help. Additionally, local lenders should have information regarding available programs offered in your area.
The USDA offers a zero down loan for buyers with low to moderate income. Not only will you need to qualify for the loan, but the property does as well. The rural development loan is geared towards homes in rural areas, but surprisingly many approved homes are closer to town than you would think. Additionally, there are other loan programs tailored to those with lower income, such as FHA and VA loans. FHA typically offers buyers a 3.5 percent down payment option, and VA is zero down.
Seller Paid Closing Costs
Closing costs are purchase-related fees payable at closing. These fees can consist of lender origination fees, discount points, escrow fees, appraisal fees, and prepaid insurance and tax premiums. Not surprisingly these dollars can add up very quickly, making it difficult for buyers with limited income to make it to the closing table. But it's very customary for sellers to help pay for a buyer's closing costs in order to get the deal done. Ask your agent to include paying part of your closing costs in negotiations with the sellers.
Meribeth Phipps has been a real estate broker since 2000, specializing in residential new home sales. She holds a bachelor's degree in business and marketing.