Affordable Homes: A Review Guide for Low-Income Families
There is a huge disparity between income and housing prices in this country, but there are many home mortgage options for low-income families, including FHA loans, USDA loans, and VA loans. Read our guide below to find affordable homes for low-income families with resources from the Justice Department, Coalition for the Homeless, and the American Bar Association.
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Written by
Angie Watts
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Reviewed by
Laura Walker
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UPDATED: Nov 29, 2021
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There is a big disparity between rental prices and renters’ incomes across the country. This leads to the current reality of minimum wage not being enough to afford to rent even a modest two-bedroom apartment no matter which state or city the earner lives in.
Many low-income households find it hard to keep a roof over their heads because of a lack in affordable housing options. They often have to sacrifice other necessities such as clothing, food, or utilities in order to stay afloat.
If you or your family are among these struggling households, the following are some affordable housing options to consider.
Table of Contents
Home Mortgage Options for Low-Income Families
In the long run, it would be more logical to buy your own home instead of renting an apartment indefinitely. However, high mortgage rates often prevent low-income families from being able to afford their own home. Fortunately, there are cheaper and easier ways to can get a home loan despite not having a lot money.
Federal Housing Authority (FHA) Loan
Backed by the FHA, this loan is specifically intended to help people from low-income households be able to purchase their own home. Qualifying for an FHA loan would mean that you would only have to pay a 3.5% down payment along with a fraction of closing costs. Another great thing about this program is that people with low credit scores can still qualify for it.
United States Department of Agriculture (USDA) Loan
Also called a Rural Housing Loan, the USDA Loan is another government-sponsored loan targeted for low-to-moderate-income families in rural and suburban areas. To qualify for this, your household must have less than $73,600 in income. The number goes up to $103, 400 if you are living in a high cost area. This loan allows a family to have 33 to 38-year loan term with subsidies available for people who do not qualify for the full payment option.
VA Loan
If you are a veteran or have a veteran as a family member, you might qualify for a VA Loan. This loan is a 0% down payment mortgage available for veterans, other service members, and some military spouses. It was initially created to help returning combatants of the second world war to be able to afford homes without down payments or having good credit scores. It continues to fulfill that same mission to this day.
To learn more about these loans and how you can apply to each, check out the links below.
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Resources:
- Gov Loans: Housing loans
- Department of Housing and Urban Development: Loans
- United States Department of Agriculture: Single family housing guaranteed loan program
- US Department of Veteran Affairs: VA home loans
Pros and Cons of Mortgages for Low-Income Families
The mortgage and home loan options we mentioned above are great and helpful, but they still come with some disadvantages. To give you an overview of these, here are some pros and cons of applying for an FHA, USDA, or VA loan.
FHA Loan Pros and Cons
Pros
- Non-strict credit requirements. You can qualify for the loan even without having the perfect credit score.
- Very low down payment. FHA loans have one of the lowest down payments at just 3.5%.
- Reasonable required reserve funds. The FHA only requires qualifiers to have a month’s worth of money reserves for those looking to buy a single-family home.
Cons:
- Mortgage insurance structure. Since FHA loans are more dangerous than other loans, insurers ask for both an upfront and monthly premium for any part of your mortgage which goes over 80% of the value of your home.
- Low loan limits. FHA loans have limits which are comparably much lower than other loans.
USDA Loan Pros and Cons
Pros
- 0% down payment. The USDA recognizes that saving a big amount of money for a down payment is hard for low-income families.
- Low interest rates. Lower interest rates when compared to FHA loans.
- Low mortgage insurance. Lower (or entirely waived) mortgage insurance fees.
- No loan limits.
Cons
- Geographic restriction. Can only offer loans for people looking to buy a house in rural and suburban areas.
- Requires several property eligibility requirements.
- Stricter borrower qualifications. Requires a higher credit score than FHA loans.
VA Loan Pros and Cons
Pros
- No down payment required.
- No mortgage insurance fees.
- Comes with refinancing options. Can help those qualified to reduce monthly payments or get cashbacks from equities.
Cons
- Only for veterans, service members and their spouses.
- Has mandatory VA funding fee. This fee goes to finance the agency and future programs.
Resources
- Fort Bragg Federal Credit Union: VA loan-mortgage
- National Low-Income Housing Coalition: Resources
- Family Housing Fund: Fact sheets
Determining What You Can Afford
To help determine what range of monthly payments you can afford based on your current income and financial situation, you can input your details on the many mortgage calculators you can find online.
Check out the links below for information and calculators:
Resources
- American Bar Association: Home buying resources for consumers
- USC Credit Union: How much can I afford?
- Mercy Housing: Find affordable housing
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Additional Costs to Take into Consideration
As you may already know, buying a home entails other costs depending on the contract you agreed to and the laws of the state you are in. In some cases, the property seller will shoulder these costs. Still, it is a good idea to know how much money you will need to have on hand when you decide to purchase a property.
Some of the common fees you should be aware of are:
- Title insurance
- Tax service provider fees
- Government taxes
- Appraisal fees
- Property taxes
- Homeowner’s insurance
To know more about these fees and their importance, check out the links below.
Resources
- Consumer Finance: What fees or charges are paid when closing on a mortgage and who pays them?
- Federal Trade Commission: Shopping for a mortgage
- Indiana Department of Financial Institutions: A guide to mortgage settlement costs
Finding Affordable Housing
There plenty of affordable housing directories online which lists rentals and properties for sale. You can find dedicated sites for almost every state, city, and county in the United States, so your location shouldn’t be much of a problem.
Organizations who specialize in issues like homelessness and housing for low-income families also have their own directories which you can browse through. You can find links to their sites listed below.
Resources
- USA: Finding affordable rental housing
- National Coalition for the Homeless: Directory
- Low-Income Housing Institute: Find housing
Fair Housing Laws
While every state might have its own additional laws regarding housing and discrimination, your right to housing is primarily protected by the federal Fair Housing Act.
This law prohibits landlords, real estate companies, and other similar entities from discriminating against anyone due to their race, religion, sex, national origin, ethnicity, or disability.
If you experience housing discrimination, you can file suit under this law. You may choose to reach out to government agencies or mail in a complaint to your own city or municipality.
To know more about The Fair Housing Act and how you can lodge complaints under it, check out these links below.
Resources
- Department of Justice: The Fair Housing Act
- New York State Division of Human Rights: Fair Housing Guide
- Fair Housing Center of West Michigan: Fair Housing Laws
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Homeless Assistance
If you and your family are currently under threat of becoming homeless, you can find assistance from various organizations and shelters. Look for help in your area.
Volunteers of America is one organization has emergency housing options for people who need to find either temporary or permanent housing.
You may get in touch with this or other organizations through the links below.
Resources
Volunteers of America: Homeless People
Coalition for the Homeless: Get Help
Homeless Advocacy Project: Emergency Help