How to Buy a Home, Even if You Don’t Earn Much

I make $45,000 in a good year. I’m a freelancer to boot, so 30 percent of that income goes to taxes. While I’m a good saver, some things are beyond my reach. I’m never going to own a yacht, for example, and I’ve accepted that.

But other things, like homeownership, aren’t out of my reach. I dream of having a house that’s all mine. My space is very important to me: I’m a natural homebody, and these days I work from home. I’d love to own my space and reap the benefits that come with that. Many aspects of owning a home appeal to me — like being able to rent out a second bedroom for extra income and avoiding rent increases each year.

I spoke with Kristina Modares, a Realtor in Austin, Texas, about how those of us with a lower income can buy a house. Her advice was insightful, especially if you live in a hot market where sellers have the upper hand.

Of course, everyone’s situation is different. Modares and I spoke generally — your personal finances and needs may be very different from mine. Here are her top tips on how to buy a home on $45,000 a year:

1. Go in with a partner
2. Know whether to get an FHA loan or a conventional one
3. Come (extra) prepared if you’re a freelancer
4. Seize the day!

1. Have a Partner

Romantic or otherwise, a partner can make a huge difference in your ability to save for a down payment, as well as your appeal to lenders. Securing financing for a house can be especially tricky for freelancers due to our unusual paper trail when it comes to income.

Having a partner (like a sibling, parent, or significant other) can make the process easier.

As Modares says, “If you see a vision of owning a home and someone is willing to help you, why not use that source?”

2. Know the Difference Between an FHA Loan and a Conventional One

An FHA loan is a mortgage secured by the Federal Housing Administration. With these loans, you can put as little as 3.5 percent down. They’re designed for lower-income people, so you can have a lower credit score and down payment. You are considered a riskier buyer, but the mortgage is insured by the government.

Conventional loans are mortgages that aren’t guaranteed or insured by the federal government. They’re offered by private institutions like banks and credit unions and conform to the loan limits set by Freddie Mac and Fannie Mae. You can get a conventional loan at either a fixed or adjustable interest rate. With these loans, you can put down as little as five percent.

If you get a low mortgage (meaning that the amount a bank will lend you is lower), you’ll want a conventional loan — especially in a hot market. Conventional loans are seen as more secure, as you generally need a higher income and larger down payment to qualify.

3. Freelancer? Come Prepared!

Freelancers are seen as riskier buyers. They often need to have worked for themselves for a minimum of two years and have the documents to prove it. As you’re not a W-2 employee, your income probably varies month to month. That’s riskier for lenders to take on, so they want to see lots of proof you’ll be able to make your payments.

Further Reading: Learn more about what freelancers need to do in order to get a mortgage.

4. If You Want It, Carpe Diem

If you’re committed to buying a house, you should buy one. Especially for those on the lower end of the income scale in hot markets, if you hesitate, you may lose out on a home. “If you find a home in your desired area and your price range, go for it,” says Modares. “Even if it means putting less down. That house might not be there next week.”

Final Thoughts on How to Buy a Home

Once you have the house, you can rent out a room or delay improvements until you pay off a certain amount of your new mortgage.

As everyone has a different financial picture and housing need, there’s no magic formula for how to buy a house on $45,000 a year. However, a good general plan for first-time homebuyers is to try to put down between 10 and 12 percent, get a conventional loan, and have enough in cash savings for closing costs and a separate emergency fund.

Remember it’s not just the space where your stuff lives, but the space where you’ll live. Make the best choice for yourself and for your finances.

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