Despite risks, the mortgage industry is actually pretty receptive of low-income borrowers. In fact, many programs today have evolved in order to provide financing access to this segment of the borrower market.
Many of these programs were established by the government, thus providing solid backing for the loans originated.
If such a program is why you are looking for, this article is the right place to start.Talk to a lending professional about your mortgage needs.
The USDA Home Loan
Backed by the US Department of Agriculture, a USDA loan provides mortgages for low-income families who earn 115 percent less of an area’s median income. These loans require zero down payment and little to no costs in closing.
Since its establishment in 1949, the program has helped over 1 million people own their homes.
With low interest rates, there’s no doubt that the USDA home loan is one of the best mortgage programs out there today, second only to the VA loan option.
The VA Mortgage
If you’re a military, retired or on active duty, a member of the National Guard, a reservist, or a service member, you need not look further than the VA for the best mortgage option.
The VA home loan, incomparably lenient, is a mortgage option exclusively available to any of the individuals stated above.
VA mortgages require zero down payment, no credit check and income or asset verification, no evaluation of debt-to-income ratios, and no appraisal. Closing costs can even be wrapped into your overall loan amount or be paid by the seller – whichever is convenient.
And, despite the no down payment feature, you are not required to pay for mortgage insurance, making for a significantly lower monthly mortgage payment on top of the already low interest rate.
It offers 100 percent financing at little to no cost out-of-pocket.
The FHA Loan
For those who are not looking for homes in rural areas or who are not military members, it could be hard to find programs that would par USDA’s or VA’s offers. (And you should be wary of lenders offering the same promises!)
Perhaps the closest alternative available is the FHA loan, a program insured by the Federal Housing Administration.
It does require a down payment, but at 3.5 percent minimum, it’s far better than the traditional 20 percent requirement of most conventional loans.
Aside from that, the seller can pay all or part of your closing costs and you only need a minimum credit score of 580 to qualify. If your FICO falls between the 500 to 579 range at the time of application, you will still qualify but will be required to pay at least 10 percent in down payment.
But that’s not all. The FHA allows your down payment to come from gifts – a very convenient feature for many borrowers.
Aside from that, a low DTI is not strictly necessary, and you can enlist the help of a co-signer for the loan.
The HomeReady Program
Geared towards helping millennial homebuyers and mixed families obtain a home, Fannie Mae’s HomeReady program is flexible in allowing non-conventional income sources.
Aside from allowing income from members of the household help with qualifying for the program, those members who choose not to include their names on the mortgage can still include their income for underwriting.
Minimum down payment requirement is only 3 percent, with low mortgage insurance payments.
Down payment money may be in cash, and can come from gifts or from down payment assistance programs.
Keep posted for the second part of this article series for more information on Low-Income mortgage programs.Click to See the Latest Mortgage Rates»