Lower-income borrowers are struggling to qualify for a mortgage. What solutions can brokers turn to?
Mortgage brokers working in rural areas with lower-income mortgage customers face challenges in the current economic climate, with many of those borrowers struggling to qualify for both traditional and non-traditional paths to homeownership.
Jeremy Davis (pictured top) is the president of mortgage at Southern Bancorp. He notes that recent economic trends and a sharp reduction in affordable housing programs are putting a squeeze on lower-income borrowers.
“This is concerning and already influencing the homebuyers most vulnerable to these market dynamics,” Davis told Mortgage Professional America. “We’re seeing large-scale cuts to programs aimed at affordable housing and fair lending. This combination is a one-two punch for customers in rural and low-income areas.”
Davis said that while a forecasted reduction in interest rates will help eventually, the benefits often don’t trickle down to lower-income borrowers as quickly.
“Those with lower incomes and borrowers in more rural areas typically depend on specialized lending programs, which do not see the full effects of interest rate reductions until much later in the economic cycle,” Davis said. “However, they feel the increased cost of construction and other basic household necessities much more painfully than wealthier consumers.”
Tariffs affect lower-income borrowers across the board
While some tariffs were recently paused by President Trump, other charges on steel and aluminum are still in effect. He has also raised tariffs and duties on China to 145% in total.
Russ Taylor of Russ Taylor Global says new US duties on Canadian lumber—now 34.45%—were expected. He warns rising costs, along with tariffs on steel and windows, may raise home prices and deter investment in new mills.https://t.co/zdE7VnkWGA
— Mortgage Professional America Magazine (@MPAMagazineUS) April 9, 2025
Tariff-related increases in raw materials could drive the prices of new homes up. Davis believes the lack of affordability makes it difficult for lower-income borrowers to become homebuyers.
“Affordability is top of mind,” Davis said. “Sustained higher interest rates reduce the buying power of all home shoppers, but lower-income shoppers and those in rural areas are the most impacted. In these under-resourced customer segments, small shifts can be a large barrier to homeownership.”
He notes that affordability entails more than just the cost of having a mortgage. It also includes the ability to qualify for a mortgage in the first place. Higher prices daily make it harder for these buyers to meet the debt-to-income requirements for a mortgage.
“We've seen more discussions around the ancillary costs of homeownership, but not in correlation to the degree of impact these items have on affordable housing,” Davis said. “From credit agencies skyrocketing their fees for credit reporting to the substantial increases in home insurance premiums, this is delivering a chokehold to families in lower income brackets and in rural areas where access is already scarce.
“These increases are not only unsustainable, as usual, but they also impact the most vulnerable communities the most. From tax policy, tariffs, market volatility, to costs of credit, insurance, and higher interest rates, the most vulnerable of us make the greatest sacrifices.”
Low-income borrowers being priced out of homeownership
Those who cannot afford a mortgage often have to rent instead. Redfin released a report on Thursday stating that Americans need to earn $116,633 per year to afford the median-priced home for sale. That figure is 81.8% higher than the $64,160 needed to afford a typical apartment.
According to Redfin, the gap between these numbers has skyrocketed over the last four years. In 2021, Americans needed to earn $63,925 to afford the typical home for sale, just 17.3% higher than the $54,520 required for the typical rental.
Davis said that to make matters worse for lower-income borrowers, they compete against corporations for single-family housing.
On Wednesday, Nevada lawmakers announced a new bill to curb corporate investors’ ability to purchase single-family housing. According to the Nevada Current, the bill would limit corporate ownership to 100 per year. Similar bills have been discussed in several states, including Florida, Washington, and Georgia.
“Private and corporate investors are buying homes across the country,” Davis said. “This is an epidemic, and it's a big piece of the affordability crisis in housing. Low and moderate-income buyers cannot compete with the all-cash offers made by these institutions. This seems to get very little attention, but it's a fundamental factor in the inventory shortage and rising home prices, once again, impacting the most vulnerable, most severely.”
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