How Do Low Income Home Loans Work : PaydayLV

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It must be nice for those families who can afford to buy a house in this market.  Average housing prices have soared to over $300,000, and most average families would be hard-pressed to come up with that sort of money, let alone families living at or just above the poverty line.

However, low-income families shouldn’t be stuck with the mindset that they can’t afford a house because there are options available to them.  This article will help you understand how low-income home loans work so you can start your journey to home ownership.

low income home loans

Low Income Home Loans – What Are They and How They Work

If you’re living on a low-income budget, it may be difficult to come up with the cash required for traditional mortgages as a down payment.  Low-income home loans are subsidized by the government in cases where eligible applicants can obtain loans at reasonable interest rates for much less money down or even none at all in some cases.

The loans can be subsidized by the federal, state, or local governments.  Since most banks typically require at least 5% as a down payment, most of the loan options provide homebuyers with more of the final home price financed, sometimes up to 100% financed.

Buyers will obviously need to prepare for homeownership in other ways, but these programs allow those with lower income the ability to take the down payment requirement out of the equation and get into a home.

Who Governs Low Income Home Loans?

The US Department of Agriculture back the USDA loan, which is specifically for urban residents.  Since low incomes are common in areas of the country where agriculture is prominent, the USDA loan has more restrictive requirements and is meant for a specific purpose.

The US Department of Housing and Urban Development (HUD) is responsible for governing several programs that manage the housing needs for the country.  Underneath the HUD umbrella is the Federal Housing Administration (FHA).  This program backs the FHA loan program, which we’ll get into in the next section.

Options for Low Income Home Loans

  • USDA Loan: as mentioned, the USDA loan is specifically for homebuyers who live in rural towns.  A rural area is typically a town of less than 35,000 people, though you’d need to go through the USDA application to make sure your area meets requirements.  You also need at least a 640 credit score, proof of stable income that is less than $90,300 (1-4 adults) or $119,200 (for 5-8 adults).  While the USDA loan allows homebuyers to finance up to 100% ($0 down payment), bear in mind that the USDA loan comes with mandatory mortgage insurance for the life of the loan.


  • FHA Loan: The FHA loan is slightly different from the USDA loan because it requires homebuyers to be able to come up with at least 3.5% of the home price as a down payment.  That’s if you have at least a credit score of 580.  With a credit score of less than 580, you’d need at least 10% for a down payment.  In either case, mortgage insurance is also required.


  • VA Loan:  Specifically created for veterans or active duty service members, the VA loan is backed by the US Department of Veterans Affairs.  Qualifying service members can use it to buy a home with lower closing costs, no down payment, lowered credit requirements, and competitive interest rates.  However, some sellers may not understand how they work and shy away from dealing with prospective buyers who say they are using a VA loan.


Tips for Low Income Home Seekers

If you meet most of the requirements but may still have questions, here are a few tips for those who want to explore low income home loans.

  • Improve your credit score by reducing your debt-to-income ratio, paying off some outstanding debts, or other credit score improvements
  • Search for a housing counselor, which can be found at and looking for housing counselors.
  • Find out if there are any other local or state government grants that may help you with your home purchase.

Final Thoughts

The government set up several programs to help low-income families find a way to buy a house.  Low income doesn’t mean that you can’t buy a house, but it may take a bit of work to meet the requirements.  Once you do, make sure you have a firm idea of which low income loan you need, then keep researching for additional help to get you and your family into a house you can afford.





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