How can I get a mortgage with low income?

By Gina Pogol
Mortgage Credit Problems Columnist

Dear Gina, I tried to buy a home but was told my income was not enough to qualify. I make about $37,000 per year and was trying to buy a house for $175,000. Is there anything I can do? - Chad, Pocatello, Idaho

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Dear Chad,

You did not give me the reason that the lender determined your income was too low. A lot of things influence the size of the mortgage payment you can make, including your credit problems (home loans for people with bad credit allow higher debt-to-income ratios but that's often offset by higher interest rates). Your down payment is another factor; those who make higher down payments are allowed to push the debt-to-income envelope a bit more.

Your other debts, like car payments, student loans, and credit card balances also affect how much of a home mortgage you qualify to take on. As a loan officer, I saw many young people who were living with their parents and wanted to buy a home and move out. The problem is that they often had huge car payments. If you earn $3,000 a month and you have an $800-a-month car payment, you can afford only about $400 to $500 a month for housing! At a 5 percent mortgage rate, that's a loan amount of only $40,000 plus taxes and insurance.

Help for borrowers with low income

Local government agencies and organizations often offer help to low-income home buyers. The U.S. Department of Housing and Urban Development (HUD) lists home ownership assistance programs for each state on its website. These programs include down payment assistance, which in many cases does not have to be paid back, and money for closing costs. In addition, buyers in rural areas (there should be plenty of qualifying areas in Idaho) who meet income guidelines may be eligible for USDA loans, which require no down payments and in some cases come with low subsidized mortgage rates. Another plus of USDA mortgages is that there is no monthly mortgage insurance to deal with.

Run your numbers through a mortgage calculator. If it's your other debts keeping you from getting approved, pay them down before applying again. Make regular contributions to a savings account to show that you can sustain a certain payment on a continuing basis. You can also try for a mortgage payment, including principal, interest, taxes, and insurance, that approximates your current rent. That way you already have a track record that shows you can afford it.

Another option is to go into buying a home with friend or relative. Combining incomes makes qualifying easier. Or you may be able to get a close friend or relative to act as a co-signer or non-occupant coborrower. Again, the idea is to have more income to use for qualifying.

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