How to Become a Homeowner, Even With Little Income

If you think you can't buy a home because of your income, you may want to think again and look at these options.

The American dream of owning a home can often feel unattainable for low-income families. If you’re among the nation’s low-wage earners, you’re probably struggling to simply make ends meet, so the idea of bringing home enough money annually to qualify for a mortgage, or saving for a down payment, can seem challenging at best. Finding a home you can actually afford makes the challenge that much greater.

As The New York Times recently reported, “affordable” housing is typically that which “costs roughly 30% or less of a family’s income. Because of rising housing costs and stagnant wages, slightly more than half of all poor renting families in the country spend more than 50% of their income on housing costs, and at least one in four spends more than 70%.”

The good news is there are mortgage vehicles that can help — ranging from government-insured loans to programs offered by banks specifically for low-income borrowers. Here’s several options specifically designed so that you too can have a crack at the American dream.

Keep in mind, though, that your credit will still need to be in good standing to qualify for these loans. If you don’t know where your credit stands, you can check your two free credit scores on Credit.com. You can also use these tips to help improve your credit scores before you apply.

FHA Insured Loans

Kyle Winkfield describes Federal Housing Administration (FHA) loans as the gold standard for those with low income or a high debt-to-income ratio.

And as someone who owned a mortgage company for years, Winkfield should know.

“I’m a fan of FHA,” said Winkfield, now managing partner of the Washington D.C.-based wealth management firm O’Dell, Winkfield, Roseman and Shipp. “For the right person, it’s what America is supposed to be. It is supposed to be that bridge to opportunity. And FHA is a manifestation of the American dream of being able to provide for your family and have a better life.”

FHA offers various options for low-income families and individuals. Two of the most notable are its Fixed-Rate FHA mortgage and the Adjustable-Rate FHA mortgage.

FHA’s fixed-rate mortgages are geared toward those who have not been able to save money for a down payment, such as recent college grads, newlyweds or those still completing education. It allows buyers to finance as much as 96.5% of the loan, helping minimize the amount of cash the buyer must have for a down payment and closing costs. In addition, it allows 100% of the closing costs to be paid with money received as a gift — whether from a relative, non-profit or government agency (check out our explainer on down-payment assistance).

The adjustable-rate FHA mortgage, meanwhile, is designed for low- and moderate-income families trying to make the leap from renting to owning. Its key highlights include keeping interest rates and mortgage payments to a minimum. The interest associated with this mortgage may change over the years (you can learn more here about adjustable-rate mortgages, or ARMs), but the most it can increase in a single year is 1% and it cannot ever increase more than 5% from the initial rate.

Freddie Mac Home Possible & Fannie Mae Home Ready

If FHA loans are the gold standard, Freddie Mac and Fannie Mae are the silver option, Winkfield said.

The Freddie Mac Home Possible mortgage allows for minimal down payments — as little as 3% to 5%. And similar to the FHA programs, the source of down payments can be a family gift, employer-assistance program or secondary financing. In terms of annual income requirements, mortgages such as these are generally aimed at those whose income is below the “Area Median Income” (AMI). But Home Possible was developed to assist those in high-cost or under-served areas and therefore allows borrowers to qualify even if they make more than the AMI.

Potentially, the most important thing to know about Fannie Mae Home Ready mortgages is that they allow low-income borrowers to have a co-signer who will not be living in the home. This is a big deal, particularly for single-income households. It means that if your parents, your brother, your sister or anyone else wants to help you get into a home, their income can be taken into consideration when qualifying you for the mortgage. The borrower also is not required to be a first-time home buyer.

“Almost one-quarter of people are sharing a mortgage with someone other than their spouse,” said Ray Rodriguez, regional mortgage sales manager for TD Bank, underscoring the importance of programs like Home Ready. “It could be a parent, a friend, or a domestic partner that they didn’t classify as a spouse. What it shows is that more often than not, people are getting help to buy a home.”

Veterans Affairs (VA) Loans

Developed for military members, a VA loan has several notable benefits, beginning with the fact that there’s no down payment required, eliminating what can be a major hurdle to home ownership.

In addition, VA loans do not require mortgage insurance, which saves still more money. Mortgage insurance is typically needed for those putting less than 20% down on the home, and is either added to your monthly mortgage payment or your closing costs, or both. And finally, credit requirements on the VA loans tend to be less strict..

Most members of the military, veterans, reservists and National Guard members are eligible to apply for a VA loan. Spouses of military members are also eligible under a variety of conditions.

USDA Loans

For buyers in rural areas, another path to home ownership is provided by the United States Department of Agriculture (USDA), through their Rural Development loan program. Probably one of the most under-the-radar mortgage options out there, it was developed to help moderate-, low- and very-low-income buyers.

The USDA offers a couple of different low-interest mortgages, neither of which require a down payment.

First, there’s the Guaranteed Loan, which is available through approved lenders. Applicants must meet income requirements, which vary by state and by region. In general, however, the borrower’s income for USDA loans can’t exceed 115% of the area’s median income. The mortgage also requires that you live in the home you’re buying as your primary residence and meet citizenship guidelines.

The USDA’s Direct Loan is designed for low- and very-low-income buyers who don’t qualify for the Guaranteed Loan. As its name implies, the Direct Loan is not accessed through an approved lender, but directly from the USDA. It provides help with monthly mortgage payments. The amount of that assistance is determined based on family income and is in the form of a subsidy that lowers what you pay out of pocket. The loans can be paid back over 33 to 38 years, and when factoring in the payment assistance provided, interest rates can be as low as 1%.

Like the first loan, there are conditions that must be met to qualify, including being unable to obtain a mortgage elsewhere, agreeing to occupy the property as your primary residence and meeting citizenship or eligible non-citizen requirements. In addition, you must be without decent, safe housing.

Mortgage Options Provided by Banks

Many banks offer their own programs for low-income borrowers, including well-known ones like Bank of America, TD Bank and HSBC.

HSBC’s Community Works program for instance offers as much as $7,000 in closing cost help, loans for up to 97% of the appraised property value or purchase price (whichever is lower) and flexible lending guidelines to help more people qualify.

Bank of America offers an Affordable Loan Solution mortgage that includes a fixed-rate loan designed specifically for low- and moderate-income borrowers. The down payments for this mortgage can be as low as 3%, but owners can’t own additional properties at the time of closing.

TD Bank’s RightStep program allows for putting as little as 3% down. Borrowers must have a credit score of at least 660 and the borrowing limit is $417,000.

“There’s a lot of options out there and the biggest misconception people have is that they have to put 20% down to buy a home,” Rodriguez said.

Still Other Options

There are also many lesser-known programs aimed at assisting low-income home buyers, often on the state and local level, said Brett Graff, editor of The Home Economist.

In Arizona, for instance, there’s the Home Plus Home Loan Program, in New Jersey there’s the Homeward Bound Homebuyer Mortgage Program, and these are just a few examples.

“There are some great programs out there and the best programs are usually through your state,” Graff said.

One final option worth checking out is the U.S. Department of Housing and Urban Development’s (HUD) Good Neighbor Next Door program, Graf said. Designed to help revitalize certain communities, this mortgage discounts the price of a home 50% and requires only $100 as a down payment. It is available only to a handful of specific professions. Qualifying individuals include law enforcement officers, pre-K through 12th grade teachers, firefighters and emergency medical technicians.

The homes are all located in revitalization areas and sold through HUD. In addition, you must live in the home for 36 months as your sole residence.

Image: SelectStock

The post How to Become a Homeowner, Even With Little Income appeared first on Credit.com.

Wal-Marts in Wealthier Neighborhoods Are Better, Study Claims

If you shop at Wal-Mart, you probably go there because you can get some items cheaper than you can elsewhere, not necessarily because you receive outstanding customer service.

According to one new study, however, just how good or bad your customer experience is at Wal-Mart likely has more to do with the racial and economic makeup of the neighborhood in which you’re shopping than anything else, a new paper.

Per the paper, “Wal-Mart’s Consumer Redlining,” written by Columbia University Professor Adam Reich, “poor customer service is unevenly distributed across Wal-Mart stores in ways that reproduce racial and socioeconomic disadvantage. The racial composition and average income of the neighborhood in which a Wal-Mart is located is strongly associated with the kind of service customers can expect to receive there.”

Reich, an assistant professor of sociology, conducted an analysis of Yelp reviews about Wal-Mart (approximately 35,000 reviews across 2,840 stores). What he reportedly found was that Wal-Mart stores situated in low-income communities of color “consistently get lower Yelp scores than those situated in wealthier, whiter communities.

“Moreover, when I conduct a similar analysis but work to untangle race from [socioeconomic status], I find that race is more strongly related to low ratings than class.”

Erica Jones, senior manager of corporate communications for Wal-Mart, called Reich’s analysis “flawed and without merit.”

“In fact, our customer traffic and overall customer satisfaction scores have been improving and we’re focused on continuing to do better,” Jones said in an email. “Our associates play a critical role in the company’s success and that’s why we’ve invested $2.7 billion on associate education, training and wages. We’re also proud to provide communities across the country, regardless of social or economic background, access to affordable goods and career opportunities to help them better provide for their families.”

While the majority of retailers alter their stores to best serve the neighborhood in which they are located – in everything from the items stocked to the size of the store and even hours of operation – Reich’s paper argues staffing is the key factor for the service woes he noted in underserved communities.

“Wal-Mart workers understand perhaps better than anyone the obstacles to providing good customer service at the company,” Reich wrote. “In the summer of 2014 I led a team of undergraduate students that conducted interviews with 89 Walmart workers in five different regions of the country (Los Angeles, Dallas, Chicago, Cincinnati and Central Florida). In these interviews workers expressed how difficult it was to take care of their customers in the face of short staffing and poor working conditions. This was true across sites, although the difficulty seemed particularly acute for those who worked at stores in low-income communities of color.”

David Livingston, managing partner at DJL Research, who provides market analysis and competitive intelligence for retail supermarkets, said it’s important to keep in mind that Wal-Mart enters neighborhoods that other retailers won’t. He quickly notes that the store also gets tax credits and infrastructure funding to enter these low-income communities, and does so on a larger scale than most other retailers.

“All retailers redline, whether it’s pizza delivery or whatever business, there are some places you’re just not going to go because of personal safety reasons, theft, crime and it can be real and perceived,” Livingston said. “If an area is just perceived as being high crime even though it might not be, that can be reflected in the redline…One of the problems is, you have a hard time finding people that want to work in those areas.”

That means these stores end up hiring people who may be less qualified but are willing to work in that location.

“This happens from the store manager all the way down to the bottom,” Livingston continued. “You get the least qualified people into these stores, therefore the conditions end up looking much worse than a store in a more affluent area.”

For shoppers, that can mean a less enjoyable shopping experience.

Remember, no matter where you shop, it’s important not to overspend as high levels of debt can bust your budget and damage your credit score. (You can see how your spending may be affecting your credit by viewing two of your credit scores, updated every 14 days, for free on Credit.com.)

Image: snyferok

The post Wal-Marts in Wealthier Neighborhoods Are Better, Study Claims appeared first on Credit.com.

Wal-Marts in Wealthier Neighborhoods Are Better, Study Claims

If you shop at Wal-Mart, you probably go there because you can get some items cheaper than you can elsewhere, not necessarily because you receive outstanding customer service.

According to one new study, however, just how good or bad your customer experience is at Wal-Mart likely has more to do with the racial and economic makeup of the neighborhood in which you’re shopping than anything else, a new paper.

Per the paper, “Wal-Mart’s Consumer Redlining,” written by Columbia University Professor Adam Reich, “poor customer service is unevenly distributed across Wal-Mart stores in ways that reproduce racial and socioeconomic disadvantage. The racial composition and average income of the neighborhood in which a Wal-Mart is located is strongly associated with the kind of service customers can expect to receive there.”

Reich, an assistant professor of sociology, conducted an analysis of Yelp reviews about Wal-Mart (approximately 35,000 reviews across 2,840 stores). What he reportedly found was that Wal-Mart stores situated in low-income communities of color “consistently get lower Yelp scores than those situated in wealthier, whiter communities.

“Moreover, when I conduct a similar analysis but work to untangle race from [socioeconomic status], I find that race is more strongly related to low ratings than class.”

Erica Jones, senior manager of corporate communications for Wal-Mart, called Reich’s analysis “flawed and without merit.”

“In fact, our customer traffic and overall customer satisfaction scores have been improving and we’re focused on continuing to do better,” Jones said in an email. “Our associates play a critical role in the company’s success and that’s why we’ve invested $2.7 billion on associate education, training and wages. We’re also proud to provide communities across the country, regardless of social or economic background, access to affordable goods and career opportunities to help them better provide for their families.”

While the majority of retailers alter their stores to best serve the neighborhood in which they are located – in everything from the items stocked to the size of the store and even hours of operation – Reich’s paper argues staffing is the key factor for the service woes he noted in underserved communities.

“Wal-Mart workers understand perhaps better than anyone the obstacles to providing good customer service at the company,” Reich wrote. “In the summer of 2014 I led a team of undergraduate students that conducted interviews with 89 Walmart workers in five different regions of the country (Los Angeles, Dallas, Chicago, Cincinnati and Central Florida). In these interviews workers expressed how difficult it was to take care of their customers in the face of short staffing and poor working conditions. This was true across sites, although the difficulty seemed particularly acute for those who worked at stores in low-income communities of color.”

David Livingston, managing partner at DJL Research, who provides market analysis and competitive intelligence for retail supermarkets, said it’s important to keep in mind that Wal-Mart enters neighborhoods that other retailers won’t. He quickly notes that the store also gets tax credits and infrastructure funding to enter these low-income communities, and does so on a larger scale than most other retailers.

“All retailers redline, whether it’s pizza delivery or whatever business, there are some places you’re just not going to go because of personal safety reasons, theft, crime and it can be real and perceived,” Livingston said. “If an area is just perceived as being high crime even though it might not be, that can be reflected in the redline…One of the problems is, you have a hard time finding people that want to work in those areas.”

That means these stores end up hiring people who may be less qualified but are willing to work in that location.

“This happens from the store manager all the way down to the bottom,” Livingston continued. “You get the least qualified people into these stores, therefore the conditions end up looking much worse than a store in a more affluent area.”

For shoppers, that can mean a less enjoyable shopping experience.

Remember, no matter where you shop, it’s important not to overspend as high levels of debt can bust your budget and damage your credit score. (You can see how your spending may be affecting your credit by viewing two of your credit scores, updated every 14 days, for free on Credit.com.)

Image: snyferok

The post Wal-Marts in Wealthier Neighborhoods Are Better, Study Claims appeared first on Credit.com.