I Make 25k a Year—Can I Buy a House?

There are many low-income loan programs that can help you buy a house if you make 25k a year.
Written by Katherine Duffy
Reviewed by Melanie Reiff
While it may seem difficult to buy a house with a $25k yearly income, there are many private and government-funded loan programs to help you buy a home on this paycheck. 
Buying a home has been the quintessential American dream for decades. While our idea of buying a home has expanded to include condos, duplexes, tiny homes, and even homes on wheels, buying a home remains complex—no matter where you’d like to live. 
Most Americans can’t buy homes outright, no matter how much they make, which means just about every aspiring homeowner has to navigate the complicated process of getting approved for a home loan, or a mortgage. 
Not sure where to start?
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Low-Cost Home Loan Options

While your income isn’t the only factor lenders consider when approving you for a mortgage, low income can make it difficult to buy a home. 
Thankfully there are many different loan options that are designed to help lower-income individuals buy their dream homes.
Here’s a list of home loan options if you make around $25,000 per year. 

Federal Housing Administration (FHA) Loans

FHA loans
are given as a part of a program led by the US Department of Housing and Urban Development (HUD). This loan program is perfect for lower-income earners because you’re only required to pay a 3.5% down payment instead of the usual 20%. 
Depending on the FHA lender you use, you may be able to get this loan with a credit score as low as 580 and a debt-to-income ratio of 45%. 

First-Time Homebuyer Loans With Zero Downpayment 

If you’re a first-time homebuyer and you don’t mind moving to a rural area or you’re a military member, you may qualify for a government-backed 0% down payment home loan, including: 

Housing Choice Voucher Program (HVC)

The HVC program
allows low-income individuals to put their housing vouchers towards purchasing a house. Voucher programs vary depending on the public housing agency, but you typically need to be a first-time homebuyer, meet specific employment conditions, and attend a pre-assisting homeownership program. 

Private Lenders

Private Lenders such as Fannie Mae and Freddie Mac offer home loans with incredibly low down payment requirements, putting homeownership within reach for low-income buyers. 
  • Fannie Mae’s HomeReady loan
    just requires a 3% down payment, and you can use gifts, grants, or other small loans to cover this cost. Plus, income from all adults in your home can be used to qualify. You’ll need a credit score of at least 620 and a debt-to-income ratio lower than 50%. 
  • Freddie Mac’s Home Possible loan
    also requires just a 3% down payment and a 660 credit score to qualify. The down payment can also come from gifts or other small loans, so you may not have to pay out of pocket. 

Nonprofit Organizations

Many non-profit organizations like Habitat for Humanity offer home loans that don’t require a down payment, are interest-free, and forego closing costs. You’ll need to demonstrate a need for safe housing to qualify for
Habitat for Humanity’s Habitat House program
The nonprofit builds a new home from the ground up with you and uses your mortgage payments to pay for future homes built with the program.  

What affects my mortgage rate?

While the above low-cost loan options are great, not everyone will qualify for one. If you’re looking at a traditional mortgage, you’ll want to have a good understanding of the 28% rule.  
In general, lenders want to ensure you’ll be able to make monthly payments, so they base their loan rates on the idea that your monthly mortgage payment and other home-related expenses won’t exceed 28% of your gross monthly income. 
While the 28% rule may affect how much lenders are willing to give you, your monthly income isn’t the only factor. Here are a few other things lenders consider when approving you for a mortgage: 

Debt-to-income ratio

Your debt-to-income ratio (DTI) is the portion of your income you spend on debts like student loans, credit cards payments, or car loans. Lenders figure out your DTI by dividing your monthly debt payments by your monthly income. Like the 28% rule, this percentage indicates to lenders whether you can afford to take on another loan payment. 
While each lender has specific DTI ratio thresholds, you’ll want to make sure yours is under 50% before applying for a mortgage—ideally, it should be under 36%

Credit score

Your credit score—which can range from 300 to 850—is a pretty good indicator of how good you are at paying back loaned money on time. High credit scores of 700 or over indicate that you make payments regularly and on time, while low scores indicate that you miss payment deadlines regularly. 
If your score is under 650, work on making regular payments on your card to improve it before applying for a loan. 

Down payment

Lenders also consider how much money you can pay for your home upfront—otherwise known as your down payment. Say you’re buying a $300,000 home and you’re able to put $60,000 down upfront. This means that you’re able to put a 20% down payment towards your mortgage. Lenders may require minimum down payments depending on your income, DTI, and credit score.  

What Should I Do if I Don’t Like the Mortgage Rate?

There are a few things you can do if you don’t like the mortgage rate you're given. Here are the most popular ways to get a more favorable mortgage rate: 
  • Increase your credit score to demonstrate to lenders that you’re responsible with borrowed money and you can handle a larger home loan. You can increase your credit score by making regular purchases, paying off these purchases before the payment deadline, and keeping your credit balance low. 
  • Increase your income to decrease your debt-to-income ratio and provide more cash for a down payment. Create a budget to pay off your debts, and if you have the time or resources, consider pursuing a higher income position or part-time work to supplement your income. 
MORE: How to make a counteroffer after a home inspection

Find affordable home insurance

There are lots of costs associated with buying a new home, like mortgage payments, closing costs, realtor fees, utilities, property taxes, and last but not least,
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Getting approved for a mortgage with low income can be tough, but there are lots of low-income loan programs available to you. Start by keeping a healthy credit score and lowering your debt-to-income ratio. 
Then, apply for home loans with low-income loan programs like FHA loans, USDA loans, the HVC homebuyers program, or through private lenders like Freddie Mac or Fannie Mae.
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