Homebuying Programs for Low-Income Families

Home Buying ProgramsIn most areas of the country, owning a home is a significantly better investment than renting an apartment. If you have a bit of money in savings and can consistently pay your rent on time, you may be ready for homeownership.

For many, however, there is one big hurdle–the down payment. What if there’s no way you’ll be able to save enough for a down payment in the next five or six years? That was the challenge for my wife and I when we bought our first home. Luckily, we had some help from relatives and some money in the bank.

Regardless of your specific circumstances, there are plenty of great homebuying programs for low-income families and those struggling to save a down payment.

HUD Housing Counselors

The U.S. Department of Housing and Urban Development certified local housing counseling agencies are a great place to begin. A housing counselor may charge a small fee, but he or she can walk you through your federal, state and local homebuying program options, help you come up with a housing budget and more.

You can find a counselor in your area through the HUD.

FHA Loans

FHA loans are mortgages backed by the Federal Housing Authority. The FHA guarantees that if you default on the loan, the FHA will pay the bank for its losses.

This helps encourage banks to lend to people who don’t have excellent credit or a huge down payment. In fact, you can use an FHA loan to finance up to 96.5 percent of a home’s purchase price. With a conventional mortgage, you can generally finance only 80 to 90 percent of a home’s purchase price, depending on lender requirements.

This means you don’t have to save nearly as much for a down payment. On a $200,000 home, you would have to put down $7,000 for an FHA loan, as opposed to $20,000-$40,000 on a conventional loan.

Also, FHA loans don’t require great credit like conventional mortgage loans might. You still need to show a stable job history and prove you’re in a good position to pay the mortgage. But requirements are much less strict, opening up a mortgage possibility for lower-income individuals and families. You can check out the credit requirements for an HFA loan for more details.

Two similar programs that can reduce homebuying requirements are the Rural Housing Guaranteed/Direct Loan Program and the VA Loan Guaranty Program.

Other Special HUD Programs

The HUD runs other programs for certain types of individuals that can help you save more and put homeownership within your reach. Here are a few options:

Good Neighbor Next Door

This program encourages public servants – police officers, teachers, firefighters and EMTs – to move into areas HUD is trying to revitalize. If you fall into one of these categories and agree to live in a home as your sole residence for three years, the Good Neighbor Next Door Program could knock 50 percent off your home’s list price.

Hurricane Relocation Program

If you’ve been ousted from your home by Hurricane Katrina, Rita or Wilma, you may be eligible for a 10 percent discount on a home’s market price. The home has to be sold through HUD, which sells foreclosed properties that were insured by the FHA or other government programs. The Hurricane Relocation Program also could help you repair the home with HUD-generated funds.

Local Homebuying Programs

Because homeowners are more likely to take care of their properties and care about their neighborhoods, there are some states, cities and municipalities that have homebuying programs. You can find a whole state-by-state list through HUD.

Here are a few of the programs from around the country to give you an idea of the types of programs out there:

  • California: The California Housing Finance Agency offers down payment assistance through the California Homebuyer’s Downpayment Assistance Program for first-time homebuyers. The program lends money – through a lender, not directly to you – for your down payment. You have to pay it back, but this program can get you into a home more quickly.
  • Indiana: Indiana’s programs are listed by city. In Indianapolis, the Division of Community Development runs a down payment assistance program that offers grants (i.e., you don’t have to pay it back) to certain lower-income homebuyers in the area.
  • West Virginia: The West Virginia Housing Fund offers lower-interest mortgages to first-time and seasoned homeowners who may not meet traditional lending requirements.

Contact your state or city to find out more about potential housing programs in your area.


Non-profit programs like AmeriDream and the Nehemiah Program used to be one way to obtain down payment assistance. Unfortunately, changes to the FHA program in 2008 mean that homebuyers can no longer use down payment assistance from non-profits.

Still, though, non-profit organizations may be able to help you on your way to homeownership. Here are some options to be aware of:

Habitat for Humanity

This well-known program is widely misunderstood. Many people think that Habitat for Humanity builds free homes for the homeless. Instead, families who are unable to save for or buy a home can participate in the Habitat program and wind up with a mortgage through Habitat.

Habitat vastly lowers homeownership costs by building homes with donated work – and often with donated materials. The families who are accepted into the program get an interest-free, down-payment-free, closing-cost-free mortgage through Habitat. They are required to pay back the mortgage, usually over 15 years.

I have some friends who are working with Habitat now. They’ve been called poster children for the program. They’re a hard-working couple, but they just don’t make enough to support their family of five while saving for a down payment on a home.

Homeownership will be cheaper for them than renting their current apartment, and they’ll help keep the Habitat for Humanity program going by paying back their mortgage.

If you think you might be a good fit for the Habitat program, talk to a local representative. Be warned: getting a Habitat home takes a lot of work, including a financial management course and tons of volunteer hours, but it might be worth your while.

Other, more local non-profits may offer other assistance to homebuyers, including free counseling, homeownership classes, or help with renovating if you buy a more-affordable home that needs some TLC.

Topics: Mortgages

5 Responses to “Homebuying Programs for Low-Income Families”

  1. Hallelujah! So many people are unaware of all the great programs for first home buyers.

    And others count themselves out because they don’t think they’re low income. But low income according to HUD is someone whose annual income is less than 80% of the area median income. So in high income counties, you can make a pretty good living and still count as low income for many programs.

    Finally, a good way to search for special housing programs is through Neighborworks.org. You can search for nonprofit agencies in the sidebar of their website.

    Disclaimer, I am proudly associated with a Neighborworks affiliated nonprofit.

  2. Mike F.

    The link you have for whole state-by-state list through HUD is incorrent. It points to a page not found. Please make sure that if you post links that they are accurate. This also reflects badly on your other information as possibly incorrect or inaccurate.

    • Rob Berger

      Mike, thanks for letting us know. The link did work correctly when we published the post. Unfortunately, we don’t control 3rd party sites, and sometimes they take down pages or change the url. I’ve found the new url and changed the link.

  3. Mike F.

    The link you have for good neighbor next door program is also pointing to a page that does not exist. PLEASE check your links before powting them. As several of them are referring to pages that do not exist!

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