Low Income Home Loans and Housing Support Programs
By Brandon Cornett | 2017, all rights reserved | Duplication prohibited
First, the bad news. There aren’t as many low-income home loans and housing programs as there used to be. Some of them were put on “hold” during the housing crisis and subsequent recession. Others were discontinued entirely.
Now for the good news. There are still plenty of home-buying programs for people with below-average income. You just have to know where to look. And that’s where we come in. On this page, you’ll find a collection of links and information relating to low-income mortgages and other programs for buyers.
3 Types of Low-Income Mortgage Help
You’ll find a list of programs below. But before we get to that, I want to give you some background information. There are several types of low-income home buying programs available today. They all provide mortgage assistance in some way, either directly or indirectly.
There are three types of programs designed for low-income borrowers:
- Mortgage insurance — This is when the federal government (or some other entity) insures the mortgage loan made by a private lender. This form of government backing makes it easier for borrowers to qualify, even when their income might disqualify them for a conventional mortgage. FHA and VA loans are a good example.
- Direct lending — In some cases, the government will make loans directly to low-income borrowers (without going through a private lender). The USDA rural housing program is an example of this type of assistance.
- Grant programs — This is when the home buyer is given a monetary grant from a non-profit or government agency. This is another way for people with low-income to buy a home.
All of the programs mentioned below fall into one of these three categories. So let’s take a closer look at those programs:
You should research the low-income home buying programs in your state as well. Most states offer some form of assistance for local buyers. Sometimes it takes the form of educational counseling. Other times, it comes as direct financial aid or grants.
There are too many state programs to list on this page. Google is the easiest way to find pertinent information for your area. Just do a Google search for home buying programs or low-income home loans, followed by your state. You might be surprised by the number of resources you find.
You can also find a state-by-state list of programs on the Department of Housing and Urban Development (HUD) website. They have a list of low-income mortgages, grants, educational programs, and other types of assistance.
For example, the Ohio Housing Finance Agency (OHFA) has helped thousands of low- and moderate-income residents purchase a home. I found out about this by using the HUD guide to local programs, and drilling down to the assistance options for the state of Ohio. Their website is a great place to continue your research.
Here’s the link you need:
Today, there aren’t as many low-income mortgage programs as there were in the past. But with a bit of homework, you might find the type of assistance you need. Look into the federal programs we discussed earlier. Next, find out what’s available in your state by using the HUD web link provided above.
Federal Housing Administration (FHA) Loans
If you’re exploring low-income mortgage options, you should look into the FHA program as well. This program is not limited to borrowers with low income. It’s just well suited for them. The Federal Housing Administration was formed under the National Housing Act of 1934. The FHA insures home loans made by approved lenders. If the borrower defaults on the loan, the lender gets reimbursed by the federal government.
This program is not a free pass for under-qualified borrowers. You will still have to show you can afford your monthly mortgage payments, as you would with any other type of mortgage loan. The lender will review your income and your debts, to see how well you could manage your monthly payments. In addition, you’ll have to make a down payment of at least 3.5 percent of the loan amount. So it’s not a handout by any means. But it does open up some doors for low-income borrowers seeking a home loan.
Your upfront costs will probably be lower on an FHA loan than they would for a conventional mortgage (one that’s not insured by the government). And you might find it easier to qualify under the FHA’s guidelines, even if your income falls short of conventional standards. That’s why it’s included on this page.
Learn more about FHA requirements:
Find an approved lender in your area:
USDA / Rural Housing Loans
Do you live in a rural area? If so, you might qualify for a low-income home loan through the United States Department of Agriculture (USDA). This housing program is designed for people with low or very low income. I put those words in quotation marks, because the government has specific definitions for them:
According to their guidelines, very low income applies to people who are below 50 percent of the median income for the area in which they live. Low income applies to people who earn 50 – 80 percent of the median income.
These are also referred to as Section 502 home loans. They can be used to buy, build, renovate or relocate a home (if you meet all of the program requirements). This program is unique in that the federal government makes the loans directly to borrowers. In other low-income programs, the government only insures or backs the loans. In this scenario, Uncle Sam acts as your lender.
Applicants must currently be without adequate housing. You must also have sufficient income to cover your mortgage payments. Loans made under this program typically have monthly payments that amount to 22 – 26 percent of the borrower’s income.
Low-income home loans made through the USDA / RHA program usually have a term of 30 years. But the term may be up to 38 years for those who cannot afford the monthly payments on a shorter-term, 30-year loan. (Stretching out the term reduces the size of the monthly payments, since they are spread over a longer period.)
You cannot buy a high-end home with one of these loans. The property being purchased must be modest by local standards. There are loan limits in place as well, and they vary based on the area in which you live.
Where to learn more:
Counseling Programs for Home Buyers
If you haven’t done so already, you might want to schedule a meeting with a HUD-approved housing counselor. These folks offer free and low-cost training sessions to anyone who wants to buy a home.
Housing counselors can be found all across the United States. They receive training and certification in various aspects of the home-buying process, and then they get the HUD seal of approval. They can help you sort out your options for getting a mortgage loan, managing your debts, improving your credit and more.
Visit this section of the HUD website and click on your state:
Housing Assistance for Renters
All of the information above pertains to low-income home loans. Thus, it pertains to people who are trying to buy a home, as opposed to renting. If you are seeking housing assistance of a rental nature, you should look into the Housing Choice Voucher program (more commonly referred to as Section 8).
Here’s the link you need:
Through this program, the federal government pays rental assistance to participating landlords, on behalf of the tenants. So, essentially, the government is paying some of your monthly rent. Visit the HUD website above for more information.