Imagine owning a place where you can call home—a cozy, permanent shelter where you can enjoy absolute privacy and serenity from the public, as well as relaxation from inclement weather. However, buying a home with a low income can seem improbable. But the good news is that individuals or families do not necessarily need a high salary or a large amount of money in a savings account to purchase a home. The federal government and some states have several financial assistance programs designed to make home buying more accessible for low-income homebuyers. Here is a list of federal loans and their qualifications that will assist low-income people with acquiring a home:
- FHA Loans: These loans, designed by the Federal Housing Administration under the United States Department of Housing and Urban Development (HUD), are a popular choice for low-income borrowers due to their flexible credit requirements and low-down payment options. They are also moderate regarding debt-to-income (DTI) ratios compared to conventional loans. Applicants may qualify with a credit score as low as 580, accompanied by a 3.5% down payment. Lower credit scores may be possible with a larger down payment. However, they require the borrower to pay a mortgage insurance premium (MIP), which involves both an upfront fee and an annual premium. These loans do not require borrowers to have extra money in the bank after the loan is closed.
- Good Neighbor Next Door (GNND): This is a special program under HUD that offers a 50% discount to full-time law enforcement officers, educators, firefighters, and emergency management technicians for purchasing a home. The discount serves as a “silent” second mortgage over the buyer’s first one. The purpose of this silent second mortgage is to ensure the buyer fulfills the three-year residency requirement. If the homeowners remain in the purchased home for those years, their second mortgage is forgiven and cleared. Additionally, homebuyers who use an FHA loan to finance their purchase through the GNND program are eligible for a down payment as low as $100.
Public servants can search for eligible homes on the HUD Homestore website, where listings are generally available for seven days by state, city, and zip code. To make an offer, they must find a HUD-registered agent to submit a bid on their behalf for the full list price of the home. However, if multiple bids on the same property are present, HUD will direct a random lottery to determine the winning buyer. If the homebuyer’s bid is selected, their purchase will be finalized. (The HUD house store’s website is www.hudhousestore.gov.)
- VA Loans: These loans, designed under the United States Department of Veterans Affairs, are exclusively for veterans and eligible active-duty military personnel. The benefit of them is that they require no down payment and no mortgage insurance. For the active-duty personnel to qualify for the loans, they must have at least the following service:
- 90 days of continuous service during wartime.
- 181 days of continuous service during peacetime.
- 24 months of continuous service if separated from service.
- 6 years of service if in the National Guard or Reserve.
- USDA Loans: Established by the United States Department of Agriculture, these loans help individuals and families with low-to-moderate income in rural and some suburban areas. Like VA loans, they require no down payment and offer reduced mortgage insurance costs. While a credit score of 640 or higher is typically needed for a USDA Guaranteed loan, the USDA also has a Direct Loan program for borrowers with very low and low incomes (defined as 50% to 80% of the area’s median income). These direct loans can be purchased at the USDA’s Rural Development Office*, and applicants must confirm they do not qualify for a Guaranteed Loan before applying. Qualifications for a USDA loan generally include:
- Not currently owning a home.
- Making 115% or less of the area’s median income.
Along with the federal government, some states, including Alabama, have a State Housing Finance Agency that offers financial assistance programs to help low-income homebuyers purchase a home. The Alabama Housing Finance Agency has two programs for low-income borrowers, which include:
- AHFA Set-Up Mortgage: This program provides a fixed-rate mortgage and a second mortgage that covers up to 4% or $10,000 of the purchase price for down payment assistance.
- AHFA Affordable Income-Subsidy Grant: The AHFA Affordable Income-Subsidy Grant can be combined with the AHFA Set-Up Mortgage to further assist with closing costs. Eligibility for the grant depends on their income compared to the area’s median income.
If you are interested in one of these programs, the next step is to contact a local bank, credit union, or mortgage company to discuss your options. They can help you determine which program is the best fit for your situation and guide you through the application process.
Disclaimer: I am not a mortgage broker, nor do I work in a financial institution. My reason for writing this article is to give hope to individuals or families searching to buy a home but who do not have sufficient income. This information came from www.mymortgageinsider.com/low-income-home-loans-and-mortgage-programs/)—Kenneth Sullivan.
*The USDA Rural Development Office number is 334-279-3400.