How to Buy A Home With Low Income
If you think homeownership is out of reach just because you’re earning less than you’d like to, think again! We’ve helped many people with low income become proud homeowners.
In fact, it’s something we’ve built our team around. Real estate agent Rob Moroney, for example, actually tells his own tenants that he wants to help them become homeowners within a few years of moving into his rentals, and he actively helps them explore their options, build their income and credit, and find the right path to homeownership.
For many families that dream of becoming homeowners, the biggest problem is simply a lack of education. Even though home prices have increased significantly over the last few years (and we even wrote a blog explaining how people are affording homes in today’s market), the real estate industry is filled with tools and strategies for individuals with low-income, small cash reserves, and even bad credit to become homeowners.
Here are a few avenues you can follow:
1. Explore Mortgage Options for Individuals With Low Income
One of the best strategies for getting a home with low income is to find a mortgage product that caters to individuals with low income. These mortgage products include:
1. FHA Loans
Originally started in the Great Depression, FHA loans are specifically designed to benefit individuals with lower credit scores and low- to moderate-income families. If you’re in a low-paying job, an FHA loan could be a viable option.
Down Payment Requirement: 3.5% (On a $150,000 home, 3.5% is $5,250.)
Credit Score Requirement: 580
Mortgage Insurance Required: Yes
2. VA Home Loans
VA home loans are extremely attractive options for qualified buyers as they don’t require a down payment or mortgage insurance—which can make them an excellent choice for individuals on a very small budget. Take note, though: VA Home Loans are only available to individuals who have served in the military and surviving spouses of veterans. Check the full VA home loan requirements for additional details!
Down Payment Requirement: None
Credit Score Requirement: The VA doesn’t specify credit score requirements for qualified borrowers, so this number varies from lender to lender. In general, aiming for 620 is wise, but borrows may have minimums above or below that.
Mortgage Insurance Required: No
3. USDA Home Loan
USDA loans are intended for low- to moderate-income families. While that may sound perfect to you, there is one caveat: These loans are only available in eligible rural areas that have been designated by the USDA. In general, these regions are often 50+ miles away from the nearest major city.
Down Payment Requirement: None
Credit Score Requirement: The USDA doesn’t specify credit score requirements for qualified borrowers, so this number varies from lender to lender. In general, aiming for 640 on a USDA loan is wise, but lenders may have minimums above or below that.
Mortgage Insurance Required: Yes
4. Fannie Mae HomeReady Mortgage
The Fannie Mae HomeReady mortgage was designed for individuals with low income and/or limited cash reserves for a down payment. And although the HomeReady Mortgage option requires mortgage insurance, this insurance is cancelable once your equity hits 20%—alleviating your monthly costs even further.
Down Payment Requirement: 3%
Credit Score Requirement: 620
Mortgage Insurance Required: Yes—but it is cancelable once your equity reaches 20%
Other Notes:
Flexible funding is available, so borrowers can cover closing costs from multiple sources, including gifts and grants.
You can leverage a roommate or boarder’s income to qualify.
New buyers must take a homebuyer education course.
5. Freddie Mac Home Possible Mortgage
Like the HomeReady mortgage, the Freddie Mac Home Possible Mortgage is designed for low-income individuals but it also extends to very low-income individuals. Because of this, the Home Possible Mortgage is much more accessible to individuals in certain income brackets.
Down payment: 3%
Credit Score: 660
Mortgage Insurance Required: Yes—but it is cancelable once your equity reaches 20%
Other Notes:
Flexible funding is available, so borrowers can cover closing costs from multiple sources, including gifts and grants.
You can leverage a roommate or boarder’s income to qualify.
New buyers must take a homebuyer education course.
The ideal mortgage product for you may vary from others, so contact us if you have questions! We’d be happy to talk you through your options.
2. Explore More Affordable Neighborhoods
Predicting real estate prices is always a challenge, and it’s even more difficult in today’s market. Even homes in Pittsburgh—a market that has been known for its affordable housing options—have seen their values soar by double-digit percentages in recent years.
But we can still make a pretty good guess on which neighborhoods have relatively affordable homes and are due to appreciate in the next few years (check our article on Pittsburgh neighborhoods perfect for investors to learn more).
Great neighborhoods close to Pittsburgh worth exploring include:
North Versailles - This neighborhood is sandwiched between Braddock and McKeesport, and it’s actively working to reinvent itself.
Monroeville - Despite its numerous restaurants, bars, and shopping opportunities, Monroeville has historically suffered from above-average unemployment rates—a factor that has contributed to more affordable local housing.
Sharpsburg - Sharpsburg is right off 28, minutes from Downtown, and is in Fox Chapel’s excellent school district.
Etna - Recent investments (like from fashion designer Kiya Tomlin, wife of Steelers coach Mike Tomlin) are helping to transform Etna into a desirable neighborhood.
Of course, these aren’t the only areas in and near Allegheny with affordable housing! Homes in neighboring counties can be much more affordable as you get further away from Downtown Pittsburgh.
So, if you don’t need to be in the City of Pittsburgh for work or family, moving 20-50 miles outside of the city limits can dramatically reduce home prices. A perfect example: While the median home in Pittsburgh costs roughly $230,000 as of July 2022, the median price in New Castle (50 miles north of Pittsburgh) is $70,000. That’s a big difference!
3. Start Saving For Your Down payment
Many of the loan options we discuss above require a 3% down payment. On a $150,000 house, that 3% equals $4,500!
Let’s say you’re working full-time at $10 an hour. That would mean you’re earning roughly $20,000 before taxes, and saving $4,500 in a single year would mean saving more than a fifth of your income each month!
That’s a difficult task for anyone to pull off—even individuals earning six figures.
And although there are potential grants and other resources to help with your down payment, every little bit helps. Start socking away money each week—and even consider temporarily picking up a second job if you have the time and energy.
Every little bit you can contribute to a down payment can improve your chances of getting a home.
4. Shift Your Priorities
Becoming a homeowner with low income could also mean shifting your expectations during your search.
That beautiful brick foursquare home with the wrap-around porch on the corner lot may have caught your eye, but its hefty price tag may make the down payment and monthly mortgage tough to afford.
If that’s the case, shifting what you want to buy can be a powerful strategy. Instead of buying a traditional home, you could also look into:
Manufactured/Mobile Homes - Although there are some disadvantages to living in a mobile home, such as limitations on where you may be able to live and inconsistent appreciation, a manufactured home can be a very affordable option. Three-bedroom, two-bath manufactured homes often come in under $100,000 in the Pittsburgh area.
Modular Homes - If you already have the land, a modular home (one that is prefabricated in a factory and assembled on-site) can be 15%-30% less expensive than a traditionally built home.
Fixer-Uppers - There are many precautions to take when buying a fixer-upper. The true affordability of a fixer-upper has as much to do with your ability to swing a hammer as it does your long-term budget and patience while living in a construction zone. That said, a fixer-upper can significantly reduce your upfront expenses.
Remember: Traditional homeownership isn’t the only path to becoming a property owner. Exploring other options can assist in building equity and a home you can love.
Find Additional Help For Buying A Home With Low Income
If you’d like personalized assistance in buying a home in Pittsburgh without a huge paycheck or major cash reserves, contact us!
