Buying a home is a big part of the American Dream for a lot of people. These people work as hard as they possibly can to try and put themselves in a position to purchase a home.
But no matter how hard that they work, it can be very challenging for some people to purchase a home in this day and age. It’s not always easy to buy a home with low income.
If you don’t bring in much money each month, you might be wondering, “Is it possible to buy a home with a low income?” It might not seem as though there would be many options for buying a home with low income.
But the truth of the matter is that you can purchase a house even with your low income. You just need to make sure that you go about doing it in the right way.
Want to find out how to make homeownership possible for you? Here are five tips that should help first-time home buyers with low income.
1. Start by Improving Your Credit Score
If you’re going to be successful when trying to buy a home with low income, you’re going to need to have a high credit score. Ideally, you want to start the homebuying process with a credit score that is in the excellent range.
If you don’t have excellent credit at the moment, that’s going to mean that you’ll have to work hard to improve your credit score. You can do this in a variety of different ways.
You can bring your credit score up by:
- Checking out your credit report to see if it has any errors on it and disputing them through the credit bureaus
- Getting current on any debt payments that you’re responsible for and making sure that you’re paying your bills on time
- Opening up new lines of credit and using them responsibly
Your ultimate goal should be to use your credit score to show mortgage lenders that you’re someone who can be trusted to take out a home loan despite your low income. You probably won’t be able to buy a home with bad credit and low income, so you should strive to bring your credit score up as much as you can.
2. Eliminate All of Your Debt
Recent studies have shown that the average American is walking around with about $90,000 worth of debt right now. This debt includes everything from credit card debt and student loans to car loans and mortgages.
You obviously don’t have a mortgage right now that’s adding to your debt. But you might have debt in other forms, and it’s going to hold you back when you attempt to buy a home with low income.
With this in mind, you should do whatever it takes to eliminate all of the debt that you have to your name right now. The less debt that you have, the more attractive your application is going to be to mortgage lenders.
Eliminating debt isn’t something that you’re going to be able to do overnight in most cases. You might have to sell off a bunch of the things that you own or pick up a second (or third!) job to get rid of your debt.
There are a couple of good methods for reducing debt in a hurry, though. You might want to try either the debt snowball method or the debt avalanche method to do away with debt once and for all.
You might have to spend several years getting your debt problem under control depending on how bad it is at this time. But it’ll be well worth all the effort that you put into it when you start to see results and improve your chances of owning a home one day.
3. Save Up a Sizable Downpayment
Any time you go to buy a house, regardless of what your income might be, you’re going to be asked to put down a downpayment on it. If you can’t do this, there is a pretty good chance that a mortgage lender is going to say “thanks, but no thanks” when you apply for a home loan through them.
It’s going to be extra important for you to save up a sizable downpayment when you have a low income. A lender isn’t going to take your mortgage application seriously if they see that you have a low income and very little money to put down on a house.
In a perfect world, you want to be able to put down at least 20% on a house as a downpayment. You might also want to consider putting down more to show how serious you are about buying a home.
There are several steps you’ll want to take to save up enough money for a downpayment. These steps include:
- Figuring out how much you want to spend on a home so that you can calculate a downpayment
- Determining how long you want to spend saving up a downpayment
- Finding room in your budget to save up a little bit of money each month to put towards your downpayment
- Building a separate emergency fund that you can use to avoid dipping into the money you’re saving for a downpayment
- Keeping your downpayment in an account that’ll allow it to earn money on interest
You’ll need to plan to spend at least a couple of years saving money so that you can use it as a downpayment on a home. You should be strategic with how you go about doing it so that you’re able to reach your goal in an acceptable timeframe.
4. Look for the Right Mortgage Lender
If you have great credit and a high income, you aren’t going to have any trouble tracking down a mortgage lender to help you buy a home. You’ll have lenders lining up and fighting for your business.
But if you have great credit and a low income, this isn’t always going to be the case. The onus is going to be on you to locate the right mortgage lender for your specific situation. You’ll have to try and narrow down your options to only the mortgage lenders that specialize in working with those with low income.
The good news is that this shouldn’t be too tough to do. There are lenders like Loanpal out there that would be more than happy to assist you in buying a home in spite of your low income.
Just make sure that you do your homework on these lenders so that you don’t end up working with a shady company that doesn’t have your best interests at heart. Having a low income doesn’t mean that you should have to deal with a mortgage lender that isn’t going to help you get the best interest rate on a home loan.
5. Search for a Reasonably Priced Home
Once you’ve done everything else that we’ve talked about here, there will only be one thing left to do. You’ll officially be ready to start home shopping!
But before you begin trying to buy a home with low income, you’re going to want to think about how much house you can afford. The last thing that you want to do is fall in love with a home that is well out of your price range and feel frustrated as a result.
Instead, you should break out your calculator—or use one of the many online calculators—to see what you afford to spend on a home based on your income. You should be able to get a rough idea of how much money you can devote to a home every month simply by looking at your income.
Generally speaking, most experts say that you shouldn’t spend more than 28% of your monthly income on a mortgage. But even that is going to be a little bit high for some people. You might want to try and keep your mortgage to under 25% of your monthly income if at all possible.
This might limit the number of homes that you can afford to buy. But if you spend any more than that on your home each month, you’re going to run into financial issues before long. You’re much better off buying a home that’s going to fit nicely into your budget and allow you to continue to save up money.
You Can Buy a Home With Low Income If You Take the Right Steps
When you first start trying to buy a home with low income, you might struggle to do it. You’re not going to have any mortgage lenders jumping through hoops to help you.
But if you work your way through the tips listed here, you should be able to slowly inch your way closer to buying a home with a low income. You can enjoy every aspect of the American Dream as long as you’re willing to put your mind to it.
Would you like to get more tips on saving up money to buy a home? Browse through the articles on our blog to find them.