As home prices continue to rise, plenty of would-be homebuyers are worried that their chances of ever owning a home are drying up - especially lower-income families who don’t have as much financial wiggle room to adjust to home prices skyrocketing 20% in a single year.
However, affordable housing isn’t necessarily off the table - it might just require a bit more prep to get there.
There are many things low-income individuals can do to get themselves prepared for the dream of homeownership, and there are many government and private programs that help individuals and families purchase their first home. Here's what should be done first.
Talk to a HUD-Certified Housing Counselor
Speak with a HUD-Certified Housing Counselor to assess your current situation. Counselors are trained and certified to delve deep into your particular circumstances such as annual wages, outstanding debts such as credit cards, student loans, or other expenses, and savings history. They will make recommendations on paying down outstanding debt and in what priority as well as ways to reduce overall spending such as eating out, entertainment, or transportation.
Create a Financial Plan
It’s important to know how to save for a house on a low income - because you will need some cash to get the ball rolling. Create a financial plan with the HUD-Certified Housing Counselor or be referred to spend time with a Certified Financial Coach who will not only be able to refer you to various programs to help you achieve your goal but will also follow up with you to ensure you meet the milestones you have set out for yourself. Purchasing a home can be classified as a team endeavor, and that is certainly true for low-income individuals.
Take Control of Your Credit
Take control of your credit - this is a key step because without good credit, the mortgage rates you qualify for will be higher, potentially raising your monthly mortgage payment by hundreds of dollars. Rather than focusing on how to buy a house with poor credit, think about how to improve your credit so you can better buy a house. The lowest your credit score can possibly be to qualify for a mortgage is 580 (FHA loan), while conventional loans begin at 620.
Many low-income households are controlled by their credit when they have the power to take control back. Many people mistakenly believe that in order to have good credit, they should cut up all of their credit cards and cancel them. Nothing could be farther from the truth. In fact, many certified financial coaches urge customers to have at least one credit card open to ensure that the individual can demonstrate credit.
If you are too tempted to use the card, do cut it up but don't use it (if you need it occasionally, freeze it in a block of ice and keep it in your freezer - that way you’ll eliminate the risk of impulse purchases!). Credit history is one of the many aspects lenders look at to determine if you are able to take control of your finances.
Find Homebuyer-assist Programs
Seek out organizations and programs that facilitate first-time homebuyership for low-income families. Programs exist at the federal, state, and city-level as well as within certain neighborhood banks and non-profits. Each program has its own criteria and some may be mutually exclusive but for the savvy, low-income homebuyer, bundling many of these programs can lead to tens of thousands of dollars in closing costs and down payment assistance resulting in immediate equity in your newly purchased home. Low-income home loans like the USDA loan, for example, allow 0% down payment for eligible homebuyers.
You don't need to have a 6-figure income to purchase a home. With some planning, know-how, and restraint, a home to call your own could be yours.
Recap
How to buy a house with low income:
- Talk to a HUD-certified housing counselor
- Create a financial plan
- Take control of credit
- Find homebuyer-assist programs
-Contributed by Suz Garber, CEO of the RiseUp Fund, a non-profit created by Houwzer which provides a path to homeownership for underserved communities.
