Can a Home Be Purchased While Earning 13 an Hour?

Purchasing a home while earning just 13 an hour might seem out of reach, but it is possible with careful planning, budgeting, and the right approach. Here are the key factors to consider when buying a home on a 13 an-hour salary.

Income Calculation

Firstly, it's essential to understand your annual and monthly income. At 13 an hour, working full-time (about 40 hours a week), your annual income before taxes would be approximately $27,040.

Annual Income: $27,040 Gross Monthly Income: $2,253.33 (approximately)

Debt-to-Income (DTI) Ratio

Lenders typically prefer a DTI ratio of 43 or lower. This ratio compares your monthly debt payments to your gross monthly income. A lower DTI ratio generally makes it easier to qualify for a mortgage.

Affordability

Your ability to afford a home depends on several factors:

Home Price

The price of the home you can afford will depend on your DTI ratio and the amount of your down payment. Be prepared to shop for homes within a specific price range based on your financial situation.

Down Payment

A larger down payment can reduce your monthly mortgage payments and improve your chances of loan approval. While the exact amount varies, a general rule of thumb is to aim for at least 20% of the home's value to avoid private mortgage insurance (PMI).

Loan Types

Consider these loan options that may be more accessible for low-income buyers:

FHA Loans

These government-backed loans are designed for lower-income borrowers. They require a down payment as low as 3.5% and often have more relaxed credit score requirements.

USDA Loans

For buyers in rural areas, USDA loans offer favorable terms, including zero down payment and flexible credit score requirements.

Credit Score

A good credit score can help secure better loan terms. If your credit score is low, it may be more challenging to qualify for a mortgage. Aim to improve your credit score as much as possible before applying for a home loan.

Assistance Programs

Look into government and community programs that offer down payment assistance or favorable loan terms:

First-Time Homebuyer Programs: These can provide guidance and financial assistance. State and Local Assistance: Check for programs in your area that can help ease the financial burden of buying a home.

Cost of Living

Consider the cost of living in your area. Some regions have more affordable housing options than others. Research the cost of living in different areas to determine where you can stretch your budget further.

Conclusion

While buying a home on a 13 an-hour salary is challenging, it is not entirely out of reach. With careful planning, budgeting, and exploring various loan options and assistance programs, you can make your homeownership dream a reality. It is advisable to consult with a financial advisor or a mortgage broker to assess your specific situation and find the best solutions for you.

For those looking to further increase their purchasing power, consider taking on a second job or another source of income. This can help build a financial cushion and improve your down payment. In a low property tax state, a 30-year mortgage with a loan-to-income ratio of 33% suggests you could potentially borrow up to $170,000. With a 20% down payment, this is equivalent to about $212,000 for a townhouse or condo.

Wishing you all the best in your home-buying journey. Good luck!