Do you know whether your income qualifies you to obtain a mortgage and then buy a home? You are not alone.
While most buyers face similar difficulties when buying a home, buying a house on a low income is definitely much more difficult.
Thankfully, there are several loans and programs that can make home ownership somewhat more accessible to a low-income earner.
Everything you need to know about how to buy a house on modest salary
Can You Buy A House With Low Income?
Despite the lack of minimum income requirement in purchasing a home, it may be difficult for individuals with low to moderate earnings to get a mortgage and later to a property.
Beyond the loan and lender’s credit and DTI, purchasing a home entails much expense including a mortgage down payment. However, depending on the type or program, you can become an owner.
How To Buy A House On Low Income
In case you are still wondering how to buy a house on a modest salary, let us take a closer look at the entire process.
Research Your Loan Options
Find the best mortgage option and explore the various choices of house loans before applying for a mortgage. Find out what programs you qualify for, see if you fit a certain program, and ensure that you have made the best choice for you.
Some of the most common mortgage programs are VA loan, FHA Loan, Conventional Loan, Jumbo Loan, Adjustable Rate Mortgage, and others.
There are several programs that we mentioned above that might apply across the nation, but there could be more depending on the region, which only considers applications from low-income homebuyers.
Do your research at the beginning of the home-buying process to make the best decisions for your circumstances.
Get Your Finances Ready
Next, get your finances in the best possible shape by following the advice we’ve provided: pay off debt, increase your credit score, and save for a down payment.
For you to achieve your mortgage procurement objective for low-income earners, you have to qualify with the lender’s DTI ratio, and of course, credit score, before even applying.
Find A Lender And Get Pre-Approved
Once you have got your finances in order and know what’s going to be available and what the options are on a loan and assistance, you can then pick a lender and apply for a mortgage pre-approval.
To estimate a loan amount for approval, the lender may require that you provide such documents as tax returns and W-2s.
Do not be afraid to go around and compare the different lenders. Choose the one who can offer you the best deal on loan terms for you.
Find A House And Make An Offer
Once your pre-approval is done you can now begin searching for a home. You may wish to find a professional in real estate to take you through identification and viewing homes that suit all your needs within your budget.
Then, once you find one you like, your agent can help you prepare and present an offer.
Get An Appraisal And Go Through Underwriting
When the seller accepts your offer, the lender will begin the underwriting process of the loan. They review your income, debts, credit history, and the value of the property before finalizing your loan.
At this stage, the lender’s appraisal of the house determines its value and whether it is safe to lend you more money than the value of the house.
Also, at this time, you should seek a house inspection on the property.
Closing In On Your Home
The final step in the homebuying process is typically closing on your property. At closing, you will need to bring funds to close to apply to your down payment and closing costs. You will execute a few documents before taking possession of keys to your new home.
Tips On How To Buy A House On Low Income
Work On Your Credit Score
You also would most likely get a mortgage if you have an excellent credit score. In case your credit score is problematic, then you can improve it by paying on time, clearing the debt, and keeping your credit usage -the amount of credit you use in relation to your total credit limit- as low as possible.
The amount of credit needed to buy a home will depend on the kind of loan you will get. Conventional loans usually call for a minimum score of 620, though FHA loans often call for a score of at least 580.
Boosting your credit score will help you save more money at closing time. Borrowers with stronger scores tend to receive better interest rate quotes.
Make Use Of A Co-Signer
In some cases, you can even have someone co-sign your home loan. Here again, while making decisions on whether to approve your mortgage, a lender will include consideration of the financial and credit information of a co-signer besides your own.
You and your co-signer should also realize that when you can’t make your monthly mortgage payments, they will. Discuss with your co-signer your expectations for each other, as well as what you plan to do if you think you’re going to be unable to pay your mortgage.
Consider First-Time Home Buyer Programs
If you are a first-time buyer, there are national, state, and local programs that will make it possible for you to afford a home. Find out about first-time buyer programs, loans, and grants.
Pay Off Debt
For those of you who are not aware, debts, DTI, and your mortgage qualification are highly linked to each other. The fewer debts you have, the lower your DTI and the more likely you’ll be to qualify for a mortgage.
Debt Repayment
Easy to Say, Hard to Do. You can consider rolling all of your debt into a single loan at a lower interest rate and taking the dollars you save every month by not paying as much in interest and using that to make extra payments, to reduce more of your debt.
The Bottom Line
You do not need to be rich or earn six figures to become a homeowner. As you prepare yourself to purchase a home, explore all the loan options available and gain knowledge on the process of buying a home.