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Tata Capital > Blog > Loan for Home > Home Loan Options For Low Income

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Home Loan Options For Low Income

Home Loan Options For Low Income

Buying a house is a significant life milestone. But it can also take a toll on your finances. And while a home loan is a great way to fund the purchase, financial institutions can reject your application because of your low income. But this doesn't mean you should give up on your dream of owning a home.

There are multiple government-backed and private home loan options that help individuals with a low income to buy a house. From refinancing mortgages to zero down payments, these programs offer multiple benefits. Here are the 5 housing loan options that you can avail of based on your eligibility -

1. FHA Loan

The FHA loan is a government-backed program that is designed specifically for low-income first-time home buyers. The program has relaxed eligibility criteria for home loan that make it easier for you to buy a house. With an FHA loan, you can qualify for a 3.5% down payment with a CIBIL score as low as 580. Some financial institutions can also extend an FHA loan if your credit score is above 500 given you make a 10% down payment. 

Your FHA loan limit will also depend on the country where you want to buy a house. Additionally, you have to pay the closing costs that can't be financed. These costs include third-party fees, lender fees, or any other prepaid elements. Mortgage insurance is also mandatory for this loan and you can eliminate it only upon refinancing the mortgage into a conventional one.

2. VA Loan

Lenders offer a VA loan to veterans, active members, and their families. The loan has several benefits besides low-income eligibility. A VA loan helps you to finance 100% of the purchase amount. This means you do not have to make any down payment. Additionally, you do not require any mortgage insurance or closing costs to avail of this loan and can enjoy low-interest rates for home.

The Department of Veterans Affairs guarantees the VA loan, but it is extended by private lending institutions. You're eligible to get a VA mortgage if you're an active-duty service member, a veteran, a National Guard member, or a Reserve member and meet the minimum service requirement. In some cases, surviving spouses can also get a VA mortgage. A VA-backed loan enables you to replace your existing loan with a new one using cash-out refinancing.

3. Pradhan Mantri Awas Yojana (PMAY)

The Government of India has initiated the Pradhan Mantri Awas Yojana (PMAY) to provide affordable housing to citizens with low-income. Under this scheme, you can avail of a home loan for up to 20 years at interest rates starting at 6.5% p.a. The scheme also gives a preference to differently-abled and senior citizens. To avail of the scheme, you cannot own a pukka house anywhere in the country.

The Pradhan Mantri Awas Yojana has two sub-sections based on area-

  • The Pradhan Mantri Awas Yojana – Gramin (PMAY-G)
  • The Pradhan Mantri Awas Yojana – Urban (PMAY-U)

You can avail of these schemes based on the area where you want to buy a house. To be eligible for this scheme, you must belong to the Economically Weaker Section (EWS), Lower Income Group (LIG), or Middle Income Group (MIG).

4. USDA loan

If you're planning to buy a house in a rural area, you can avail of the USDA loan. The United States Department of Agriculture (USDA) extends credit to low-income families to buy homes in rural areas. With the USDA home loan, you can finance 100% of the purchase amount. However, you can only buy a house in an eligible rural area. Additionally, to be eligible for the loan, your combined household income should not exceed 115% of the median household income of your area.

The USDA loan requires you to be a US citizen and to occupy the house as your primary residence. To qualify for the program, your credit score should be 640 or more. The loan does not support refinancing mortgages after 20% equity, unlike other home loan options. Therefore, for cash-out refinancing, you must refinance your mortgage into another conventional home loan.

5. Rajiv Awas Yojana

The Rajiv Yojana is another scheme launched by the central government of India to make the country slum-free by providing a civic infrastructure, basic shelter, and social amenities to every citizen. Under the scheme, individuals from the Economically Weaker Section (EWS) or Low Income Group (LIG) can receive financial aid of Rs. 7.5 lakh for houses in the size of 21 to 40 sq. mt.

The eligibility criteria for the scheme are divided into three categories-

  • Category A - Individuals living in urban areas with a population of over five lakhs are eligible to receive a maximum of Rs. 5 lakhs
  • Category B - Individuals living in urban areas with a population under five lakhs are eligible to receive a maximum of Rs. 4 lakhs
  • Category C - Individuals living in the special category states and North-Eastern states of the country are eligible to receive a fixed amount of Rs. 5 lakhs

Own a house without straining your budget

Just because you don't have a high income doesn't mean you can't own a home. Choose a loan that works for you without burdening your monthly expenses. With these low-income housing loan options, you can't only fulfil your dream but also enjoy perks like low-interest rates, discounted mortgage insurance, a small or zero down payment, cash-out refinancing and much more.

Also remember, all these programs require you to occupy the home. This means you can't use the credit to buy a vacation house or rent it to tenants. Another important point to keep in mind is finding a lender and a real estate agent who is reliable and will consider your financial limitations and facilitate refinancing mortgages. So, before taking the plunge, make sure you research well and meet all the eligibility criteria.

You can also avail of Tata Capital home loan with easy-to-meet eligibility requirements. Visit our website and become a homeowner today.

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