How to Buy a Home With a Low Income

Everybody dreams of buying and owning his/her own home, but given the escalating real estate prices, people with average incomes are left with just a dream. However, if you are a disciplined enough to stick to a plan, buying a home is possible even if you have a low income. Here are few tips that can help you buy a home with a low income:

Get your credit in order

To make any major purchase, which you are not paying for fully, you must have a good credit record. Get a copy of your credit report and see how many late payments you have or debts which you need to repay in the near future. Once you get details of the dues you owe, improve your credit by paying all the outstanding bills and other payments.

Get your spending in order

Besides improving your credit, it is also essential to get your expenditures in order. Make a financial plan listing your sources and current reliable income as well as your monthly expenses (fixed, unavoidable, flexible and optional). Your financial plan should indicate that your monthly take-home pay after tax is enough to cover all of your bills plus your proposed mortgage, with some money still in the pocket for emergency expenditures. Mortgage lenders don’t want a person’s mortgage to exceed 25 to 30 % of his/her income.

Save money for a down payment

With a low income you may not be able to save a lot, but you should save as much as you can and aim to accumulate at least 5 % of the cost of your prospective home for a down payment. Having a down payment on you will give you a head-start in the mortgage.

Check with the bank if you can get pre-approved for a mortgage

Visit your bank and check if you can get your mortgage approved before even starting your search for a house. If you qualify for a pre-approved mortgage, your search for house will be more focused and targeted, since you will have a clear idea of what price you can offer.

Look for a house you can afford

The most important thing to keep in mind is targeting a house that you can afford. Don’t get lured by big houses, with a lot of in built facilities, since they are most likely going to be out of your price range. A simple formula for deciding your price limit is that the cost of the house should not exceed three times your annual income.