Buying Your First Home: Loans, Grants, and Aid Programs That Can Help

Low-income Americans have an easier path to a mortgage than many assume. Federally backed loans, grant programs, and rental help can all lower the barrier to entry, and several of them are open to people with imperfect credit or a small down payment. The options below explain what each program offers and who qualifies.

How FHA Loans Work

FHA loans were created to help lower-income Americans get onto the property ladder. Their lending standards are looser than those of most traditional lenders. A borrower can put down as little as 3.5% of the loan amount and carry a credit score as low as 580.

That makes them a strong fit for first-time buyers who have not yet built up a large down payment. They can also work well for applicants with a score under 600, a group that conventional lenders usually turn away.

Some of the criteria for an FHA loan include:

• A credit score of at least 500
• A Mortgage Insurance Premium
• A debt-to-income ratio below 43%
• A home that will serve as the primary residence
• A steady income, backed by proof of employment

The Down Payment Toward Equity Act

First-time buyers may soon be able to receive a cash grant to put toward a purchase. Under the Down Payment Toward Equity Act, those who meet certain criteria can claim a free $25,000 grant. The program is aimed at helping renters buy a home and take their first step onto the property ladder.

To qualify, income cannot be more than 20% above the median household income in the buyer's metro area. If that median is $30,000, for example, the income ceiling would be $36,000.

Help With Rent Payments

For those who need help with housing costs, Rent Payment Assistance may fit. Through the Housing Voucher Program, low-income Americans receive a voucher they can use to rent in corporate complexes or from private owners.

The main advantage is flexibility in choosing where to live. Whichever property is selected, though, the company managing it must be an approved property owner.

A local Public Housing Agency (PHA) usually decides how much help a household gets. It looks at local market prices and sets a base voucher amount. The monthly assistance is then calculated by subtracting 30% of the household's monthly income from that voucher.

Renters can pick a home that costs the voucher amount or choose a pricier one, provided they can pay the difference.

Eligibility requirements include:

• Using a Section-8 approved complex
• Meeting the low-income standards set by the applicant's state
• Providing relevant references
• Passing a background and/or credit check

As with most government-subsidized housing, expect that securing an apartment with rental payment assistance may take several months.

Rural Rental Assistance

People in rural areas can apply for a private subsidized housing program run through the United States Department of Agriculture (USDA). Landlords receive tax incentives in exchange for offering discounted rents to low-income families.

Requirements for this program include:

• A monthly income at or below the USDA income limit for the area
• Evidence that monthly rent exceeds 30% of monthly income
• Compliance by the property owner with their own requirements, which can include a background or credit check

To find out more about Rural Rental Assistance, use the USDA Service Tool and contact the local USDA Rural Field Development office.

Next Steps

Anyone who has worried about making the next rent payment, or who is trying to work out how to buy a first home, has options. Local programs exist, and one of them may supply the financial help needed. Whether the solution is a temporary re-occupancy program or a down payment assistance grant, the local housing authority can help people move toward self-sufficiency.

Speaking with a local Housing Authority agent is a good first move for finding out which programs match a particular situation.