Single Parents Homebuyers Guide
It’s common to assume that you have limited options for homeownership when you’re a single parent. Juggling the responsibilities of the kids, a job and the finances may seem hard enough without the added pressure of paying off a mortgage each month. However, there shouldn’t be any obstacles keeping you from owning a home and creating a new life for you and your kids.
There are approximately 10.5 million one-parent households in the United States and about 31% of these families own their own homes. With the right tools and information, you can join these parents in homeownership.
It’s Possible To Afford a New Home
One of the biggest concerns for single parents is finances. Whether they are worried about gas money, the kid’s school clothes or paying rent, the budget is a significant worry for most single earners. The thought of coming up with a down payment may be terrifying, as well as not knowing what kind of affordable home loans are available. Single parents have access to home loans just like any other individual, so long as they can meet the eligibility requirements of the loan servicer and loan type.
Although you can save on the monthly cost of homeownership by putting down a substantial down payment, don’t let a lack of immediate savings keep you from looking into home ownership now. There are several programs available to help you take care of the down payment costs or reduce them to less than 20% down. The stronger your credit and income reports are, the greater your likelihood of receiving a lower mortgage rate as well.
Income
Buying a home takes a certain amount of income, though how much depends on the cost of the home, the amount and type of the home loan, and the lender. When you are going to finance the home, a lender will take into account your debt-to-income ratio, your credit score and your monthly income. There will be a lot of paperwork to fill out to show your income, such as if you are receiving child support or alimony in addition to proving your work wages.
The DTI ratio is an important factor for lenders because it’s the affordability factor. Calculate yours by dividing the total of your recurring monthly debts by your total monthly income. This shows how much money is left over for additional expenses, including a mortgage loan. Your income requirements also factor in the costs of things like home insurance, property taxes and the interest rate on the loan.
5 Ways To Afford a New Home
Although you need enough income to purchase a home, there are several programs and loans that can help make the purchase more affordable. These tips can guide you through the home-buying process.
1. Look for a Payment Assistance Program
Many single-income buyers find help through local and state-level assistance programs. Generally, these programs are through the Department of Housing and Urban Development. You may be eligible for a grant to help cover either the down payment or closing costs. They are also a great resource for connecting with a home-buying advisor to help answer your questions about the process of obtaining a mortgage.
2. Apply for a Loan from the Federal Housing Administration
An FHA loan is issued by a bank or approved lender but insured by the Federal Housing Administration. This is one of the most affordable loan options, as well as one of the easiest with regard to eligibility. These loans don’t require a substantial down payment, which is a huge relief to single parents. If your credit score is at least 580 or higher, you are only required to put 3.5% down. If your score is lower than that, you will need to pay at least 10% as a down payment.
The qualifications for an FHA loan are simple:
You must be a first-time homebuyer.
You must not have owned a home for three years.
It’s possible for a single parent to still qualify for an FHA loan even if they previously owned a home with their ex, though this generally requires that the house owned with the ex-spouse was the only residence ever owned.
3. Seek a Mortgage Credit Certificate
A single parent who is looking to buy their first home can use a mortgage credit certificate to help with the cost of the mortgage. These certificates come as a tax credit and are issued by both loan brokers and mortgage lenders. The eligibility requirements for an MCC depend on the state where you live, but if approved, you can receive a dollar-for-dollar credit for a portion of the money paid on mortgage interest.
4. Open an Individual Development Account
Since there is a likelihood that you will need to have a lump sum of money for either the down payment on your home or other costs associated with home ownership, opening a special savings account is a wise idea. Individual development accounts help low-income individuals or families achieve big financial milestones. An IDA program is a matching program, where your deposit amount is matched by the financial institution. These are generally government-funded programs offered and run by banks, credit unions and non-profit organizations. There are eligibility requirements for IDAs, and the matching amount can vary from one to four times your deposit total.
5. Consider Applying with a Co-Borrower Guarantor
If you are still worried that your credit or income level may not be strong enough to qualify for a home loan, consider using a guarantor or co-borrower to boost your application. Because of the financial responsibility that comes from signing up to pay back a mortgage if you are unable to make the payments, you should only consider this option with someone you trust and who has financial stability. With a strong credit score, income and other assets, a co-borrower could help you get a lower interest rate, lowering your monthly payments.
Buying a home as a single parent is doable, provided you have a solid income and understand your creditworthiness. These tips can help you navigate the process and determine how much home you can afford. Contact us for more information.