Homebuyers

Home Loans for Lower-Income Buyers: What You Should Know

For many homebuyers, the biggest obstacle isn’t rising home prices or mortgage rates. It’s coming up with the down payment.

Between rent, bills, and other financial commitments, setting aside enough for a down payment and closing costs can feel out of reach.

“Most low-income buyers are having a difficult time right now due to the higher prices of homes and the low supply of homes in their price range,” said Dianne Steffey, a loan officer for New American Funding based in San Antonio, Texas.

Fortunately, there are mortgage programs to help bridge the gap. These options offer lower down payments, reduced mortgage insurance costs, and even grants to help make homeownership more attainable.

“Saving for a down payment can feel like an uphill battle, especially with today’s costs,” said Stephen Moye, a loan officer for New American Funding based in San Diego, Calif. “But there are programs designed to help."

HomeReady and Home Possible: Expanding access to homeownership

Two mortgage programs, Fannie Mae's HomeReady and Freddie Mac's Home Possible, help lower-income borrowers secure affordable financing.

These programs allow for low down payments—as little as 3%. They also offer more flexible credit score requirements to make homeownership more accessible.

Starting March 1, 2025, first-time homebuyers who qualify as very low-income will be eligible for a $2,500 credit through the HomeReady program. Buyers must earn 50% or less of the area median income (AMI) where they hope to purchase a home.

The AMI is what the typical household earns in a year in that region. Buyers can find an area’s median income here.

This credit can be applied to a down payment or closing costs, reducing some of the upfront financial barriers many buyers face.

The Home Possible program allows co-borrowers on a mortgage. These people don’t have to live in the same home as the buyers and may even own another home with a mortgage. This can help lower-income buyers potentially be able to qualify for a home loan.

How grants can help with down payments, closing costs

Beyond mortgages, some companies in the mortgage business offer grants through down payment assistance and other programs that can further reduce buyers’ upfront costs.

The Freddie Mac BorrowSmart program provides financial incentives to homebuyers who complete housing education courses through a HUD-approved provider.

This not only helps borrowers prepare for homeownership, but can also provide extra funds to help buyers with down payment and closing costs.

Other grant programs assist borrowers earning up to 50% of the AMI by pairing financial assistance with HomeReady® and Home Possible loans.

Moye recently worked with a buyer purchasing a $475,000 home. The buyer used a grant that covered 3% of the purchase price and used a seller credit worth another 3%. That meant the buyer only had to come up with $3,800 for the sale.

Additionally, some lenders also offer down payment assistance that buyers may be able to use in their purchases.

Some mortgages don’t require down payments

Some mortgages offer 100% financing. Plus, borrowers with lower credit scores may be able to qualify for these loans.

For example, buyers who use a U.S. Department of Veteran Affairs (VA) or a U.S. Department of Agriculture may not have to make a down payment.

VA loans, available to eligible military service members, veterans, and family members in certain instances, offer some of the most favorable loan terms. With no down payment required, no private mortgage insurance, and lower mortgage interest rates than many other types of loans, VA loans often provide significant benefits.

Those purchasing a home outside of a big city or in a more rural area, may be eligible for a USDA loan. Like VA loans, these mortgages do not require a down payment.

“There are a number of products available where a buyer can pay zero [for a] down payment and purchase a home,” said Steffey.  

Buyers may also consider a Federal Housing Administration (FHA) loan. These mortgages are designed for those with lower credit scores and allow down payments as low as 3.5%.

These loans help many borrowers, particularly first-time homebuyers or those with limited savings.

“There are great programs out there to help buyers overcome financial hurdles, it’s just a matter of finding the right fit," said Moye. "Don’t get discouraged. With the right guidance and a little persistence, homeownership can be within reach."

Stephen Moye NMLS # 268619

Dianne Ayala Steffey NMLS # 267658