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Home Loan Programs and Tips For Low-Income Oakland County MI Buyers
Owning your own home is the American dream and being in a lower income bracket doesn’t automatically disqualify you from buying a home. Fortunately, there are a number of low-income home loans available to help you reach your goal of homeownership.
Depending on other important factors such as your credit score, debt, location, and profession, you may be able to qualify for a home loan through one of the following programs: FHA loans, USDA loans, Fannie Mae HomeReady loans, Freddie Mac Home Possible® loans, Good Neighbor Next Door program, and VA loans.
Before we take a closer look at the eligibility requirements of these different loan programs, here are a few tips for buying a home with low income:
The first thing you’ll want to do is review your credit reports from all three major credit reporting agencies (Equifax, Experian, and Transunion) and dispute any errors you may find. Make a concerted effort to pay all of your accounts on time and lower your credit usage to below 30% of your available limit. This can help improve your credit score before applying for a mortgage.
You should also try to pay down your outstanding debt (especially credit card balances) which will help lower your debt-to-income (DTI) ratio. Next, you’ll want to get a mortgage pre-approval. When house hunting, sellers are likely to take you seriously if you’ve already been pre-approved when you put in a purchase offer. A pre-approval tells you how much a lender might be willing to lend you, based on a review of your overall financial picture.
After you get a mortgage pre-approval, the next step is to enlist the services of a qualified Oakland County MI real estate agent. Find an agent who is knowledgeable about the local housing market as well as the different home buying programs that are available for low-income borrowers.
Once you’ve found an agent you can work with, start looking at home buying assistance programs. Check with the Michigan State Housing Development Authority (MSHDA) for available homebuying assistance programs, including grants or loans to help cover your down payment or closing costs.
Low-income home loan programs
FHA loans
FHA home loans are loans backed by the Federal Housing Administration (FHA). An FHA loan can be a good option for first-time homebuyers who may not qualify for a conventional loan or for those who may be struggling to save a 20% down payment. With an FHA loan, a borrower can have a credit rating as low as 500 and a fairly high debt-to-income ratio.
These loans require only a 3.5% down payment, which can come from gifts, and have less stringent requirements for credit rating or income. FHA loans require all borrowers to pay upfront and annual mortgage insurance premiums, no matter their credit score or down payment amount. Borrowers putting the minimum 3.5% down will pay FHA mortgage insurance for the life of the loan.
Eligibility requirements for FHA loans:
- A 500 to 579 credit score and a minimum 10% down payment
- A 580 credit score and a minimum 3.5% down payment
- Meet local county FHA loan limits. Oakland County, MI FHA loan limits range from $331,760 for 1 living-unit home to $638,100 for 4 living-units.
USDA loans
The U.S. Department of Agriculture also ensures low-income home loans provided by approved lenders up to 90% of the loan amount. USDA loans cater to homebuyers with a modest income. With a USDA loan, no down payment is required, no assets needed to qualify, and no maximum loan amount.
Eligibility requirements for USDA loans:
- Preferred 640 credit score
- Meet local income eligibility requirements. For a family of 1-4 in Michigan, the average household income limit for a USDA loan is around $86,850, and for a family of 5 or more, it can be as high as $143,300.
- Purchase a home in a designated rural area
Fannie Mae HomeReady® loans
The HomeReady mortgage program from Fannie Mae offers low-income home loans to homebuyers with limited cash for a down payment. Underwriting guidelines are more flexible to make it easier to qualify and both first-time homebuyers and repeat buyers are eligible. If all borrowers on the loan are first-time buyers, at least one borrower must meet the homeownership education requirement, by completing an online course on the Framework website.
Eligibility requirements for Fannie Mae HomeReady® loans:
- Minimum 620 credit score
- Minimum 3% down payment
- Earn a maximum of 80% of the area median income (AMI)
Freddie Mac Home Possible® loans
The Freddie Mac Home Possible® mortgage program also caters to very low-to low-income borrowers with limited down payment funds. Both first-time and repeat homebuyers may qualify. Co-borrowers who do not live in the home can be included for a borrower’s one-unit residence, and borrowers are permitted to have another financed property – all with competitive pricing and the ease of a conventional mortgage. 1-4 units, condos and planned-unit developments, and manufactured homes are eligible with certain restrictions.
Eligibility requirements for Freddie Mac Home Possible® loans:
- Minimum 660 credit score
- Minimum 3% down payment
- An income less than or equal to 80% of the Area Median Income (AMI)
HUD’s Good Neighbor Next Door program
With the Good Neighbor Next Door program from the U.S. Department of Housing and Urban Development (HUD), law enforcement officers, teachers (pre-Kindergarten through 12th grade) firefighters, and emergency medical technicians can contribute to community revitalization while becoming homeowners. HUD offers a discount of 50% from the list price of the home.
In return, an eligible buyer must commit to live in the property for 36 months as his/her principal residence. If an FHA loan is used to buy the home under this program, the minimum required down payment is $100. You can also use a conventional or VA loan.
Eligibility requirements for HUD’s Good Neighbor Next Door program:
- Work full-time as a pre-K through 12th-grade educator, emergency medical technician, firefighter, or law enforcement officer
- Buy a home in a HUD-designated revitalization area
- Must live in the home for at least 36 months (3 years)
VA loans
The U.S. Department of Veterans Affairs (VA) offers a mortgage program to help veterans, service members, and surviving spouses purchase homes. The VA is not a direct mortgage lender, but it does guarantee a portion of the loan so borrowers can receive more favorable loan terms like a lower interest rate.
If your VA-backed home loan goes into foreclosure, the guaranty allows the lender to recover some or all of their losses. Since there’s less risk for the lender, they’re more likely to give you the loan under better terms. 90% of all VA-backed home loans are made without a down payment.
There is no minimum required down payment or mortgage insurance requirement. These loans also limit the amount you can be charged for closing costs. There are no VA loan limits
Eligibility requirements for VA loans:
- Valid Certificate of Eligibility
- Preferred minimum 620 credit score
- Required VA funding fee to offset program costs to taxpayers
Partner with highly-rated Oakland County MI REALTOR® – Tom Gilliam
Award-winning Oakland County MI REALTOR® – Tom Gilliam provides the kind of knowledge, skills, dedication, and professionalism you need when buying or selling a home.
With over 20 years of real estate experience, Tom will protect your interests, advocate for you, negotiate on your behalf, and be your trusted guide and advisor every step of the way. Tom works very hard for his clients and will always go the extra mile to ensure a smooth transaction and the best results possible!
If you or someone you know is interested in buying or selling real estate in Oakland County MI, please give Tom Gilliam a call today at (248) 790-5594 or you can get in touch here.
Tom Gilliam, REALTOR®
RE/MAX Classic
29630 Orchard Lake Rd.
Farmington Hills 48334
Direct: 248-790-5594
Office: 248-737-6800
Email: Tom @ Homes2MoveYou.com
License #314578
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