How to Buy a Home on a Low Income

In today’s economy, it’s still a buyer’s market. But many people still feel like they can’t afford to live in their own home. While it may be a good idea to rent until you are sure you can afford a home, there are so many benefits to owning your own home now. You don’t have to have a lot of money to live in your own place, and you can buy a home on a low income.

This post has been written by our regular writer, Kimberly Studdard. Enjoy!

How to Buy a Home on a Low Income

So many people just assume that they’ll rent an apartment for the rest of their lives, that there’s no other option for them. This simply isn’t true. With a little bit of savings and a bit of a cut-back in your monthly expenses, it is most certainly possible! You absolutely can buy a home on a low income. Follow the steps below and you could be well on your way to home ownership!

buy a home on a low incomeWeigh The Pros & Cons

My fiance and I live in an area that forces you to pay a small fortune in rent every month. A modest 2 bedroom apartment is about $1,000 a month. While this may not seem like much to readers in larger cities such as New York or San Francisco, that is a considerable amount considering our living wages are less than bigger cities.

Buying a home in our area results in a bigger place with a mortgage around $500-$800 a month (for a $100,000 home). Even if we were on the higher end of the mortgage amount, we would still be saving about $200 a month.

To be fair though, you should also consider property tax, repairs for your home, the fact that your utility bills may be higher, and other expenses that may pop up. But the net net still favors the home buyer over the renter.

Home Buying Assistance

Home buying programs will be different state to state, but normally you can find an assistance program that can put you in a home with little or no money down, or can help build your down payment into your loan.

It is worth noting that most likely you will have to pay this money back, but again that all depends on your state. Look into some programs that are offered in your state if you’re looking to buy a home on a low income.

buy a home on a low incomeBe Smart About Your Loan

A conventional mortgage requires that you have a 20% down payment. As luck would have it, we have about 15% saved and we have realized that now is the best time to buy in our area

Our town is rebuilding and more people are becoming interested in moving away from the city into the smaller towns, so it will soon be flooded with more home buyers. When that happens, prices for homes will go up, so buying now is going to keep us from regretting home buying later.

Because we don’t have the full 20% down, we chose to buy a home with an FHA mortgage. We would only need to put 3.5% down, and pay the mortgage insurance premium for the duration of the loan.

It isn’t really smart to keep an FHA loan however, because you will be paying at least .85% of your loan in mortgage insurance every single year. We plan on refinancing with a traditional loan when we

  1. Have at least 20% of equity in our home; or
  2. Paid at least 20% of mortgage payments

While a conventional loan may have a higher interest rate, it will completely eliminate the payment you have to make for PMI.  If you want to buy a home on a low income, the sooner you can stop paying extra money, the better.

Location Location Location

While we love our little town, it has its great (ie. expensive) neighborhoods, and then it has the “not so great” neighborhoods. We have never felt unsafe in the working neighborhoods, so we decided to take a chance and get a home in that area. Not only will we find a cheaper home, but we will also get more sq footage for our money. Most of the homes are older, but that also gives us a chance to make it our own.

If you prefer walking everywhere, know that you may have to sacrifice space and amenities to do so. If you can afford to drive, or if you don’t mind a fixer upper, you may be able to get a bigger and more affordable home.

Choose what is best for you and your family. For mine, we would prefer to have an extra bedroom, a bigger backyard, and a garage. In return, we know that we will be getting an older home, older appliances, and smaller closets. We’re choosing to buy a home on a low income, but that doesn’t mean we can’t be a little picky about what we want!

buy a home on a low incomeGo Lower Than Your Loan

When we were approved for our loan, they told us we could get a home for $150,000. To be honest, I felt like they had made mistake. How could two people who are considered lower-middle class be approved for so much? My fiance and I knew that we didn’t want to spend that much. So instead, we gave ourselves a budget of $75,000.

(Derek’s Note: YES! Great choice Kimberly!! I did the same thing five years ago and am now debt free with a home that’s worth twice as much. You won’t regret your decision.)

We know that even with $75,000, we will be able to get a decent home. We have already found plenty of homes that meet our needs and our budget’s needs as well.

To make sure that you can afford your payments, take what the bank offers you and try to cut that in half. For some, this may be difficult, so I would say to use one of those online calculators like this one to see what may be your max budget. Remember, even if you’re looking to buy a home on a low income, you don’t have to take all of the money the bank offers you.

Choose A Good Realtor

I can not stress this enough. We have lived in this area for over 4 years, and we were still in awe at the knowledge of our realtor. It is important to get a well reviewed, highly recommended, knowledgeable realtor in your area.

Not only will they be able to find homes in your budget and tastes, they can also find homes you didn’t even know were up for sale. We searched on home buying websites all the time, and some of the homes our realtor would offer to show us weren’t even on those sites.

A good realtor will also be able to help haggle for you, making the process so much easier. If you have to do everything yourself, I can tell you that you will have many stressful days. It’s definitely not easy to buy a home on a low income, but a good realtor can help you relax just a bit.

Plus, don’t forget that a realtor typically receives their earnings from the seller, meaning that you can get all the help for absolutely nothing! It’s a great deal and can be a HUGE help.

buy a home on a low incomeLook At The Bones

Don’t you just hate those shows were the home buyers nitpick at every little issue a home has, and then they buy a home way out of their price range? Yeah….I hate those shows too. When looking at a home, don’t look at the carpets, wall colors, and cabinets. Instead, look at the roof, foundation, and materials used to build the home. You can always repaint a wall, but it will cost you considerably more to repair or replace a roof.

If a home has good bones, it’s likely that you’ll spend less on repairs. I work for a heating and cooling company, so one of the first things I look for is if the furnace and AC have been maintained. If they are older that’s okay, but if they have a ton of rust, a dirty air filter, and are making a ton of noise, I walk away. If a homeowner can’t take the minute it takes to change an air filter, how do I know they have maintained the rest of their home?

Now, I am not saying that you won’t have to make some changes. You will. But just remember that you don’t want to turn down a home just because it’s not your style.

Cut Unnecessary Spending

If you don’t have a 20% down payment on your home, and if you don’t think you would be able to afford repairs,  it’s time to cut some things out of your budget. You don’t have to be house poor, but you should pretend that you are. Stop going out to eat, say no to that movie you want to go see. Make some small changes now to be able to afford your home and anything that comes with it. It’s not going to be fun, but if you want to buy a home on a low income, sacrifices are necessary.

Think about it. I would much rather spend money on a fridge that won’t break down on me than to keep eating out every weekend. If buying a home is truly important to you, you have to be able to say no to unnecessary spending and be able to keep yourself on a budget.

Be Happy With What You Have

Would I prefer to have a brand new home with brand new appliances? Sure I would. Would I prefer a home near lots of shopping and cafe’s? Of course. However, I know that I would much rather be putting more money in my pocket than someone else’s. If you buy a home on a low income, that doesn’t mean that you have to be unhappy with it.

You may not want to stay in your first home forever, and that’s okay. There is nothing wrong with having a starter home. What is important is to remember that you are lucky to own your own home, no matter how small and out of date it may be. You have a roof over your head, and something you can call your own.

Be grateful that you were able to get something that so many people still can’t. A home.

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2 comments to How to Buy a Home on a Low Income

  • This was an awesome post, Kimberly. One insight that I was unaware of was PMI only existing on FHA loans. I thought this was something that EVERYONE paid on any loan if they didn’t have 20 percent down. This is good to know. We currently have an FHA loan and I always assumed PMI was something we would have to pay until we reached that 78ish or something percent in equity. Thanks for sharing:)
    Latoya @ Life and a Budget recently posted..How to Earn More Money

  • I hate that banks are still offering people much bigger loans than are reasonable for their situations! It is as if they want people to enter foreclosure.

    It is so important to remember that “sacrificing” not having the right neighborhood or the cutest appliances is nothing compared to the joy and thrill of owning the home you live in. I hope I join you in that bliss soon.
    ZJ Thorne recently posted..Net Worth Week 10 – Grief Edition

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