National Affordable Housing

The Best Tips For Buying A Home On A Low Income

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If you dream of being a homeowner but think you don’t make enough money, you might be pleasantly surprised. Here are some great tips for ways to make your dream come true.

Know what you can afford. You can start your search by finding out approximately what sort of payment you can afford. There are handy online calculators that can help you figure this out. Adjust the information in the calculator to your own specific criteria.

Calculate your down payment. A down payment is a portion of the house purchase price which you pay up front. Traditionally, a down payment of 20 percent is paid toward the purchase of a house, and then you make monthly payments for the rest of your mortgage loan term. However, according to some studies, a whopping 81 percent of Americans put less than 20 percent down on their first home purchase.

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Some lenders will allow as little as three percent down. The disadvantage in making a smaller amount down is that it means you finance, or borrow, more. You may need to stretch payments over a longer period of time or make higher monthly payments. Many people get help putting together a down payment from their parents, borrow from a retirement plan, or take advantage of first-time home buyer loans or grants. Check with the Federal Housing Administration (FHA), which offers great options for people struggling to purchase a home.

Understand your debt-to-income ratio. One of the things lenders look at is your debt-to-income ratio. Experts explain that this is calculated by first totalling your monthly debt payments. Then, you divide that number by your gross monthly income. Your gross monthly income is all of the money you earn during an average month before any deductions, including your salary, wages, tips, commissions, or any other money you’re generating. Generally, banks prefer that your debt is no more than 43 percent of your income.

Monitor your credit score. If you have bad credit, it will hurt your opportunities to purchase a home. However, there are things you can do to improve your situation. Don’t take out any new loans or apply for new credit cards until after your home purchase. It’s important to pay your bills, and do so on time. By tidying up your spending habits, you can show potential lenders you are responsible and capable of keeping up a house payment. Pay off any existing debts if you possibly can; eliminating even one or two small debts by paying them off can help.

Research VA and USDA loans. The Veterans Administration (VA) offers special loans to former military personnel with zero percent down. Similarly, the United States Department of Agriculture (USDA) gives one hundred percent financing to some middle- and low-income applicants in rural areas. These loans require a special application process and fee.

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Think outside of the box. You might want to explore some unconventional ways to finance a house. According to US News and World Report, some people are co-purchasing homes together. If you have a family member that needs your assistance, such as an aging parent, this might be a great option for you both. Similarly, friends in situations who might benefit from such an arrangement, such as divorced empty-nesters, are deciding to share space. Explore possibilities with options like in-law suites or divided residences.

Make your dream come true. Purchasing a home on a low income is a real possibility. Become familiar with what you can afford, and find out what sort of down payment you will be able to pull together. Calculate your debt-to-income ratio and improve your credit, and consider alternative loans or purchasing options. With these great tips, your dream of home ownership can become a reality!

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