Low-income people can become homeowners if they keep their expectations realistic and shop around for the best financing available. Loan types Low-income borrowers have a few mortgage options available to them. Conventional loans have a set interest rate and the payments stay the same throughout the life of the loan. Adjustable rate mortgages usually have a low initial interest rate that can help low-income borrowers afford more house. However, the rate will increase after a certain period. Likewise, interest-only loans allow low-income borrowers to forgo paying on the loan principal and only make payments on the interest for a set number of years. When that period ends, the borrower will have to start paying off the principal as well as the interest. Keep in mind, however, that people with low income may find themselves in trouble if they buy more house than they can afford. This is especially true if the borrower has an adjustable rate mortgage or interest-only loan that increases the payments after a certain period. Down payment and insurance assistance Many low-income borrowers who don't have good credit or a down payment rely on government backed loan programs from the Federal Housing Administration (FHA), Fannie Mae and Freddie Mac that make qualification easier. Down payment assistance is funded by the Department of Housing and Urban Development and is used to help with the closing, rehabilitation and down payment costs. The program is designed to help minorities and low-income individuals purchase homes. Down Payment Assistance can be distributed through a number of subprograms, including the American Dream Down Payment Initiative. In the same vein, the Mortgage Insurance Program offered by the Federal Housing Administration is used to aid individuals in the purchasing of a single-family home. The program lends money through lenders approved by the FHA and FHA insurance programs. Under this program, homeowners who put down less than 20 percent on their home do not have to purchase expensive mortgage insurance on their own. Grants Many grants are available for homeowners and soon-to-be homeowners. These funds do not have to be repaid, Making them a good source of funding to fill gaps and income down payment or other home related expenses. The main source of funding for these grants comes from federal organizations such as the Department of Housing and Urban Development, the Federal Emergency Management Agency and the Federal Housing Administration. Grants for homeowners can help cover the costs of a number of different home-related projects, including paying for a new house, making structural or functional repairs, and rebuilding after a natural disaster. The Self-Help Home Ownership Opportunity Program is designed for homeowners who will participate in the construction of their home. HUD provides funding for the grant, which is awarded to local or regional nonprofit organizations. These organizations must use the funds to build or improve low-income housing units for individuals and families. Rural Housing Repair Loans and Grants are offered to low-income individuals who need to improve, repair, modernize or remove health hazards from their rural homes. However, the grants can only be used for repairs and hazard removals. To be eligible for a Rural Housing Repair grant, individuals must be over the age of 62. Up to $7,500 can be awarded under the program. The FEMA Housing Portal designed to help families and individuals who have been displaced from their homes as a result of a disaster. The portal helps people find unoccupied rental units in their area, which are organized and paid for by federal agencies, such as HUD, or by private companies.