Home Loan Advice for the Low-Income Borrower

If you are concerned over how you will afford a house on your income, there is some reasonable home loan advice you should follow to keep yourself out of a bad loan or potential foreclosure. Home ownership is a tool for building lifelong wealth; it is also a core portion of the American dream. However, jumping into home ownership simply because you feel you are personally ready is not a good idea. You must be financially ready as well, and you must be able to locate a loan you can handle at your current income.

Shop for a Loan First

Many first time borrowers make the mistake of finding a home before they find a loan. The risks of doing this are great. If you get your heart set on a home, you may later find out you cannot get a loan approved in the amount you need. This can lead to tremendous frustration in the home shopping process. Further, you will not know what you can afford until a bank tells you. Even if you have an idea what you may be able to purchase, you need to be pre-approved for a loan so you buy something that is in your target range.

Beware of Predatory Lenders

Before the mortgage melt down of 2007, there were a lot of predatory home lending practices taking place. Lenders were offering sub-prime loans to those with low incomes. Sub-prime loans are actually below the national prime interest rate to begin with, but most of them jump up sharply after a certain period of time. These lending practices went into tighter controls after the mortgage scams were exposed. However, there are still a number of lenders who will not look out for the borrower's best interest. Aim for a fixed rate loan, pay attention to your loan terms, and do not jump at an offer that is "too good to be true."

Think about Total Cost of Ownership

Your mortgage will not be the only expense you have to pay each month when you own a home. You will have insurance, taxes, maintenance costs and possible home owners association fees. You should ask your realtor about all of the expected costs on a piece of property. Old homes in particular can be more expensive to maintain. Taking on a fixer-upper on a low income can drain your finances without any immediate pay out. Look for a home that will have low cost of living in addition to a less expensive mortgage.

Consider FHA Guarantees

If you are credit worthy, even with a low income, the FHA may be able to guarantee your loan, reducing financing costs, down payment requirements and monthly payments. The FHA will also assist you if you are delinquent on your payments in an emergency. You must have a healthy credit score and stable employment to qualify. If these factors describe you, even if your salary is on the low end, you should be able to gain at least a partial guaranty on your mortgage.