How can I buy a home on a low income?
June 22, 2016
Q: Do you have any tips for buying a home on a low income?
A: Often, being able to afford a home is not so much a question of income as of expenses. If you are good at managing your expenses and can find the right property, you may well be able to afford a home on a modest income. In fact, the low level of current mortgage rates makes homeownership unusually accessible.
To take advantage of this opportunity, here are three steps to consider:
Master your household budget
Not getting in over your head with a home purchase depends greatly on being able to predict your income and expenses. The income side of this comes down to the stability and security of your job. You should not contemplate homeownership unless you are confident that you have a steady job, and marketable skills in case you need to change jobs.
On the expense side, you can only know what you are getting into with a mortgage if you learn to predict expenses reliably. This means laying out a budget that accurately captures all your upcoming expenses, and then having the discipline to stick to that budget. Saving for a down payment in a savings account can be a great exercise in implementing this kind of strict budget discipline, and the money you save up should also help with your home purchase.
Concentrate on home values, not price
While you are working on your budget and saving for a down payment, get to know the area real estate markets. This will give you an idea of where the best values might be found, and give you enough of a sense of local prices that you will know a good deal when you see it.
The key word here is value, rather than price. The cheapest home might not be the best buy, if it is in a bad neighborhood or not in sound condition. You should be looking for something you can live with long-term that is reasonably priced.
Secure an FHA or VA loan
With a limited income, a possibility you should look into is a mortgage through the U.S. Federal Housing Administration (FHA). The FHA is a department of the federal government that arranges mortgage insurance in order to give lenders confidence to make loans to homebuyers with relatively low incomes or minimal credit histories. They also provide loans with low down payments, though saving up for a larger down payment should earn you better terms on your loan.
If you are a U.S. military veteran or service member, you should also look into a loan with the U.S. Department of Veteran Affairs. This is another federally-backed program, with even more favorable terms than FHA loans.
If you choose an FHA or VA mortgage, keep in mind that while these are government programs, they are offered by private lenders. Even though the level of current mortgage rates is generally low, actual rates will vary from lender to lender. So, shopping around for the best rate will help your income go farther toward affording a house.
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