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First-Time Homebuyer Guide for Low Income Buyers

Couple sitting in new house

When trying to buy a home as a first-time homebuyer, you may feel limited by how tough it can be to save up enough money for a down payment or even knowing where to begin the buying process. However, homeownership is still well within reach for those who take the time to research the requirements, educate themselves on the process, and come up with a solid plan. 

Below, you’ll find several tips designed to help low-income first-time homebuyers successfully purchase their new house. 

7 Tips on How to Buy Your First Home with Low Income 

Use a First-Time Homebuyer Program 

Offering more flexible requirements than other home mortgages, low-income first-time homebuyer loans and grants can be a great choice for those struggling with money. FHA loans from the Federal Housing Administration and USDA home loans from the United States Department of Agriculture are just a couple of the valuable options for first-time buyers. Government-backed loan products can provide a new homeowner with more accessible programs and have helped many borrowers purchase a home. 

The main difference in these first-time homebuyer loans is the requirements. They have a low minimum down-payment percentage of 0-3.5%, a minimum credit score requirement of between 580 and 620, and a DTI (debt-to-income) ratio ranging from 41% to 50%. It is important to note that meeting these criteria does not automatically guarantee you will qualify for a loan. 

Check and Improve Your Credit Score 

A main qualification that lenders require to obtain a loan is a minimum credit score. One of the first steps low-income first-time homebuyers should take is to improve their credit scores. The higher the credit score, the lower the monthly interest rate. 

At the very least, a first-time homebuyer's credit score should be 580, since this will allow potential buyers to apply for an FHA loan or a loan from the Department of Veterans Affairs (VA loan) if they’re associated with the military. Some lenders may accept a credit score as low as 500 under certain circumstances. 

Things that may affect the condition of your credit score can included the age of your accounts, how much you have borrowed vs how much you have paid off, and how consistent your payments have been. 

If a low-income first-time homebuyer believes their credit score is already at a decent level, they should then pull their credit reports from agencies such as Equifax, Experian, and TransUnion. This will give the buyer a good idea as to where their credit stands. 

Possess a Stable Income 

Before speaking to a mortgage lender, low-income first-time homebuyers should have a stable source of personal income. Whether you’re receiving a salary annually or hourly, or whether you’re self-employed or own your own business, lenders will be looking for a consistent and secure source of income for at least the past two years. This proof of income needed by your lender communicates to them that you have the means to repay the money you want to borrow.  

Mortgage lenders will also look at your recent bank statements in determining your home loan eligibility, so you should schedule any deposits into your checking and savings accounts from other assets you possess at least 60 days from your mortgage application. 

Cut Back on Spending 

In addition, before offering a low-income first-time homebuyer a mortgage, lenders will check their credit, bank statements, income, and employment to determine whether the borrower will be able to pay the monthly mortgage on time. During this process, it is essential for first-time homebuyers to refrain from making any unnecessarily large purchases, taking out additional unrequired loans for an expense, and closing existing accounts. If a borrower were to do these things during the lender’s background check, it is possible that the mortgage approval would be delayed or even thrown out altogether. 

When to Talk to a Mortgage Lender 

Low-income first-time homebuyers should begin looking for mortgage lenders once they know the budget they’re willing to spend on the new home and how much they'll need to have funded. Buyers should consider things that affect affordability such as property taxes, utility bills, any home improvements, and repairs & replacements to home appliances should be accounted for before shopping for a mortgage lender. 

Once the budget has been created, the search for a mortgage lender can begin. First-time homebuyers should speak to multiple lenders while comparing their individual mortgage rates, the types of mortgages offered, and, of course, the different types of lenders. As you talk to your lender, it is also beneficial to discuss things like mortgage insurance, any applicable fees, the availability of various assistance programs, and the terms of various loan programs. 

Find a Real Estate Agent 

Once you have a mortgage pre-approval from a lender, low-income first-time homebuyers should then find a real estate agent to work with who will help guide them through the homebuying process. More specifically, they’ll be able to advise you on whether the homes you’re looking at are properly priced, as well as provide information on current market conditions for the area. Real estate agents also take the time to research the area to identify any causes for concern you may wish to know about before buying a home. 

Use a Co-Signer 

Low-income first-time homebuyers who may not have the necessary funds for the monthly mortgage can choose to finance a home by choosing to co-sign a mortgage with someone they know, ideally a significant other, a friend, or a member of the family. Co-signing together with someone else means that you will both be responsible for making the monthly mortgage payments, which in turn means that both you and your fellow signer will build and share in the new home’s equity. 

Get Pre-approved for a Mortgage 

Buying a home for the first time can be a little daunting but, by following the steps listed above, the process will ultimately go much smoother. Once a low-income first-time homebuyer is ready to speak to a lender, they can get a quote from New American Funding that may help them save money on their eventual home mortgage. 

For more information regarding loans and homeownership contact New American Funding. We provide tools, like our mortgage calculator, and resources to help you calculate your mortgage costs. Our loan officers will also be happy to answer any questions you may have about a service or product we offer. 

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