The above average worker can't even qualify

[Tausen Richmond]

In my area the cheapest you can get a home is about 200k. If your lucky you score a 20$/hr job (min is 12$), and get 40k per year, and are still unable to qualify. This is a reality for most people around me, they rent and are on the edge of homelessness all the time.

What can they do? What real options do they have? How do they have a chance to get into real estate?

[David Mackin]

It's certainly not easy with a lower income. Here's a scenario to see how it could be possible:

There is a program called HomeReady (Fannie) or HomePossible (Freddie) that allows for a 3% down loan. This loan is for those that make less than or equal to 80% of the areas median income. In Eugene that number is $67,000.

Someone that makes $20 an hour and works 40 hours a week would make $41,600 a year or $3,466,66 a month.

3% down on a $200,000 house is a down payment of $6000. Add another $5,000 for closing costs (keeping numbers simple). That's a total of $11,000 funds to close.

Qualifying for the loan is all about debt-to-income ratios. Typically about 50% debt to income is the max to be able to qualify for conventional. That number does change based on different factors, but let's use 50% for the example.

A loan for $194,000 at 5.75% interest rate is $1,132.13 per month. Add $140 for PMI, $100 for taxes, and $40 for Homeowners insurance. Altogether that's $1,412.13 per month.
$1,412.13(PITI)/$3,466.66(Income) = 40.75% debt-to-income. This is a qualifying DTI ratio.

Now, most people have other debts that will need to be considered in the ratios. There is 9.25% left for wiggle room from the income to get to 50%.
9.25% of $3,466.66(Income) = $320.66
There is room for about $320 of other revolving debt like a car payment, credit card payments, etc...

Obviously these numbers are very estimated but I wanted to show the math. Someone would need to save over $10,000 for funds to close, and be able to afford just under $1,500 a month for a monthly payment. All while not having any more than about $300 a month in other revolving credit.

There are of course other programs like Down Payment Assistance programs, but these don't favor the investment minded folks so much.

I guess the real answer here is that if someone is hoping to understand what they need to buy and own property, they should find and chat with a really helpful, local lender. I'll add realtor in there for good measure as well.

I hope this provided at least a little value to the topic.

Have a great day!