Owning a home can provide a lot of benefits and an improved quality of life. You have ample space to create your desired way of living, have plenty of privacy to ensure a comfortable lifestyle and it’s typically cheaper than renting a home or apartment in the long run.
Unfortunately, saving for a new home is difficult within itself and when you have to struggle with low income on top of it all, the task can seem almost impossible. If you’re anxious about where to start, try out these helpful tips on how to save money for a house on a low income.
Home Loan Options for Low Income
Many households struggle with the reality of surviving in low income circumstances. What’s more is that many people fail to realize all of the effects on how to save money on a low income. Between food insecurity and fixed incomes, the results of poverty in the United States run deep. Luckily though, there are many home loans options out there with low payment or no down payment to help ease the stress of low income when it comes to purchasing a home.
The first is a FHA (Federal Housing Administration) loan which is backed by the government. When a loan is insured by the federal government, the lender is protected through loss prevention, meaning the qualifications for this loan include more borrowers. FHA loan guidelines typically require a minimum credit score of 580 and down payments can be as low as 3.5%, making this a perfect choice for those experiencing budgeting money on a low income.
The next type of home loan option to consider is a ReadyBuyer Homepath Mortgage by Fannie Mae and takes the federal Department of Housing and Urban Development into account. Through this loan, you can purchase any HUD home from the HUDHomestore with just a 3% down payment. The best part? Homepath will even give you 3% toward closing costs after taking educational home buyer classes.
Finally, a third home loan option you should know is a VA loan which is backed by the Department of Veterans Affairs. While these loans demand restrictions, such as being an active member of the military or a veteran, there is no down payment whatsoever. They may even apply to reservists, national guard members and surviving spouses, but a certificate of eligibility is required.
Application for Section 8 Voucher
Section 8 housing vouchers amounts are another great way to help you save for a house on a low income. This program is dependent on family size and income, but recipients are free to choose from any type of housing that meets certain criteria.
To determine if you’re eligible for vouchers, contact your local public housing agency (PHA). Section 8 housing often requires you to make under 50% of your area’s median income. After you have submitted an application, you will be placed on a waiting list. Once you have been approved, as a tenant, you will be responsible to pay roughly 30% of your income toward rent and the voucher will cover the rest.
However, there are some downsides to Section 8 housing. Applicants are likely to wait up to 1-2 years for verification, making this option less likely for those in need of immediate assistance. An application for Section 8 housing will also ask about your previous living situations. So if you’ve ever been evicted due to violations like drug related activity, you will be ineligible for assistance for at least 3 years.
When to Refinance Mortgage
If you already own a home and are simply looking to save up for another, refinancing your existing mortgage could be a helpful alternative. This is a great option when considering how to save money fast on a low income.
Before you refinance, look into several different scenarios where it may be your best bet to grow your savings. Reasons to refinance existing mortgage:
- Lower your interest rate
- Lower your monthly payment
- Get rid of mortgage insurance
- Obtain cash for home improvements
- Give your savings a boost
- Consolidate debt
If any of these apply, then a mortgage refi may be right for you.
Let your lender do the heavy lifting and give your finances a break by putting the extra money saved toward your financial goals, such as saving up for your next home.
Watch for a rate drop or tell your lender to contact you when they look attractive. Refinancing an existing mortgage made sense during the coronavirus when interest rates went down a lot.
How to Get a Good Credit Score
While you may still experience many challenges to having a low income, one thing not to let fall to the wayside is how to get a good credit score. Your credit score can determine your eligibility for many opportunities like home loans or government assistance.
When a lender analyzes your credit score, it can give them a fair sense of what kind of borrower you are. Several factors that affect your score include your payment history, credit utilization, credit history length, credit mix and any new credit you take on.
Additionally, a great way to learn more about maintaining your credit score is to know how to get rid of debt on low income. Your debt to income ratio (or DTI) is a major determinant of your credit score. Your DTI weighs the total amount you owe each month to the total amount you earn. You may qualify for more options if you have a desired DTI percentage. This is why it’s so important to continue paying down debt rather than let it build up through time and interest.
How to Budget Money on Low Income
Even when you’re living in a low-income household, you can still have healthy spending habits. Knowing exactly what you’re spending on and where you can save is a huge asset to any household. Cutting back on expenses will also teach you how to budget money on a low income.
For example, curbing costs on popular purchases like food is one area of life where you could save a significant amount to put towards a down payment on a new home. Believe it or not, you can actually save up to $16 per meal if you cook at home versus dining out or purchasing meal kits. When you think about how many meals you eat per day, it can add up to create a pretty healthy stockpile of cash.
Ways to Save Money for a House on a Low Income Summary
While it’s clear that living on a low income presents many obstacles for the average consumer, knowing exactly how and what to spend your money on when home buying is essential to saving money over time. Instead of staying blind to all the ways you can save, do your research and set yourself up for success ahead of time!