Press "Enter" to skip to content

How to Get Approval for a Mortgage With a Lower Income


There are a lot of government programs or incentives to help that first-time homebuyer.

Names such as USDA Single-Family Housing Program and mortgage credit certificates may sound daunting at first, but we’ll help straighten these out for readers needing some help buying a home.


If you’re keen on buying a home, but worry that your income isn’t high enough to qualify, read on. There are many government programs out there (if you live in the USA) that can help you qualify for a mortgage and buy a home.

As always, the key thing is to talk to experienced pros (like real estate agents, or government officials, like the Federal Housing Authority) and to do your homework by getting your papers ready.

Just to get all the programs out in one handy list, here’s a comprehensive account of the most widely used United States government programs and incentives:

  1. Home Ready
  2. Home Possible
  3. USDA Single-Family Housing
  4. HUD Good Neighbor
  5. FHA Home
  6. VA Mortgage
  7. Manufactured home
  8. Down payment assistance
  9. Mortgage credit certificate
  10. HUD home foreclosures
  11. Housing choice vouchers

Some of these acronyms look like alphabet soup, so let’s get those out of the way at first:

Acronym Stands For
USDA United States Department of Agriculture
HUD Housing and Urban Development
FHA Federal Housing Authority, governed by HUD
VA Veteran Affairs
Fannie Mae Federal National Mortgage Association
Freddie Mac Federal Home Loan Mortgage Corporation

Another important thing (the lenders will always ask) is to prepare your debt ratios. There are two main debt-to-income ratios, the front-end ratio which is the percentage that goes toward housing costs.

Housing costs would include monthly mortgage interest and capital and property taxes. In some cases, you might have homeowners association fees or mortgage insurance monthly fees. If so, include them. A typically accepted front-end ratio is around 28%.

The other, more comprehensive, the debt ratio is called the back-end ratio. It includes the home expenses of the front-end ratio (and adds on regular debts payments such as credit card, car loan payments, student loan payments, and any other payments such as child support payments). Typically, lenders ask for a maximum of 36%.

However, government institutions, in encouraging lower-income people to buy houses, typically allow higher rates. For example, the FHA Home program typically accepts a front-end ratio of up to 31% and a back-end ratio of up to 43%.

You could also borrow a mortgage with a co-borrower, typically your spouse. However, you and a friend can buy a house together, with a well-drafted contract to ensure no future legal problems down the road.

Or you could get a guarantor, perhaps a parent who might be financially comfortable enough to sign a guarantee for your mortgage. All those could help you qualify for conventional loans (i.e. not a government loan program) or help you qualify further for any of the low-income mortgage programs.

Checking into the Popular Government-Backed Options

It’s hard to find the mortgage program that best fits your needs, but the legwork pays for itself.

  • You could check first with an FHA Home mortgage, with a 3.5% down payment and a credit score of 580.
  • USDA Single Family Housing loans are geared toward buyers looking for places in rural and some suburban areas.
  • If you are a veteran or you serve in the military, you qualify for a VA Mortgage, which is great because there’s a 0% down payment required.
  • There also are Home Ready or Home Possible programs, with a 3% down payment, and they’re offered by Fannie Mae and Freddie Mac, respectively.

There are also state or city programs that encourage home buyers with a low income. To get more information about such lesser-known programs. It might be worth talking to a real estate agent or a government mortgage institution official who serves the area where you’d like to live.

With a government-backed mortgage like the FHA or the USDA, your credit score or your income doesn’t have to be as high as those of people applying for conventional mortgages. That’s because the government is essentially insuring the lender of the mortgage against any possibility of default.

HUD Home Foreclosures

One clever way to buy a house that works around all the complexities of down payment and qualifying for government assistance is to buy a HUD home.

As we recall, HUD insures FHA-backed mortgages, so if the resident later defaults on the mortgage, HUD takes ownership of the house—read more here.

And the good news is that HUD usually offers these houses at heavily discounted prices since it’s a government agency with little interest in investment profit.

However, some important drawbacks. They only happen if there’s a default on an FHA mortgage, so they can be times where there aren’t very many to find. Also, these houses are offered “as is,” meaning repairs are your responsibility if you buy the house. HUD homes are awarded to the highest bidder, so while a lower-income offers an incentive to buy these houses, would-be buyers wealthy enough not to need government assistance may be interested in the discounted values, too.

Finally, the rule is that you have to live in a HUD house for at least twelve months after you buy it.

The HUD Good Neighbor Next Door is a specialized HUD home program that is only offered to law enforcement officers, teachers, firefighters, and emergency medical technicians. This program offers a 50% discount on the list price of a HUD home.

Housing Choice Vouchers Converted to Owning Property

Usually, Housing Choice Vouchers are used as a monthly subsidy for paying monthly rent. This subsidy is directly paid by the federal government.

However, under the Housing Choice Voucher Homeownership Program, this voucher can be used to purchase a home, rather than rent.

However, this option is only for existing Housing Choice Voucher holders and can only be for first-time homebuyers. Thus, we will not spend too much time discussing this program.

Manufactured Homes

Manufactured homes fall into a tricky category, but they can be considered real property as long as they’re permanently affixed to the land and you own both the land and the manufactured house.

Since manufactured homes are usually cheaper than bricks-and-mortars homes, and smaller, they are much cheaper (depending on the location of the neighborhood) and hence might be suitable for lower-income people. The above government loans mentioned do cover manufactured homes if you qualify otherwise in all other categories.

Also, even though manufactured homes can be cheaper to buy compared to conventional homes, government loan assistance programs may be more stringent with manufactured homes, for example by requiring a higher percentage down payment.

Down Payment Assistance Programs

We won’t spend too much time on this, because these generally aren’t federal programs, but are offered by state, country, and even cities. It sounds too good to be true, but you actually would get financial help paying your down payment, either through grants (which don’t have to be repaid) or lower-interest loans that act as second mortgages.

Some of these lower-interest loans can even be forgiven if you’ve lived in the house a certain number of years, say five years. Some don’t have to be paid back until you move or refinance, which could happen as long as you like off in the future.

Down payment assistance programs are offered because research shows that paying the down payment was a huge barrier for many low-income families, especially in cities with high property values.

Mortgage Credit Certificates

Finally, we will discuss mortgage credit certificates briefly. Not offered at a federal level, these are income tax incentives offered by many states, each with its own eligibility rules.

As many Americans know, home mortgage interest is a deductible expense. However, low-income families often can’t benefit from the deductibility of home mortgage interest because their incomes aren’t high enough.

Enter mortgage credit certificates. Certain states offer a tax credit that can then be used by low-income homeowners to reduce payroll deductions from their employment, and banks do consider those tax credits income, which boosts their eligibility for mortgages.

Closing Comments

There you go—a lengthy list of programs and incentives to help you buy a home if you need financial assistance! With the right match, your dream of homeownership can come true.