As a single mom, owning a home may be far from the first thing to cross your mind every day. Between raising children on your own, making sure the bills are paid, and generally keeping all your ducks in a row - homeownership may seem like a dream that's out of reach. Luckily, there are a number of loans and programs available that can make that dream more than possible and we're breaking them down for you in today's article.
Are there a lot of single mothers that purchase homes themselves?
Yes! Single female buyers are the second most common home buyer behind couples. So there are a lot of single moms out there making homeownership happen every day. Many come to us at Charleston's Best Home Team very timid and even fearful about the process. Trying to figure out how to buy a house as a single mother combined with the feeling of "Going It Alone" understandably makes them apprehensive.
But we're able to put them at ease knowing that we'll be with them every step of the way. As a single mom myself, I'm honored to have the opportunity to assist so many other single moms who are first-time homebuyers.
What are some of the main difficulties or barriers they experience when attempting to purchase a home?
The median home price for single female buyers has been its lowest at under $200k and in many real estate markets, this makes things a bit more challenging for single moms in search of homes in their price range that include the features they need to accommodate a family.
One of the main barriers many single moms face is not understanding where to start when you want to buy a house and exactly what it entails. Many feel their income will be a hindrance to their home purchase and getting approved for a home loan until they gain more knowledge regarding their options.
Are there ways in which a single mother can get assistance with a home mortgage without needing financial help from others?
There are actually a number of programs available to single mothers to assist with homeownership. Each of these has its own requirements so it's important to review them carefully and not be afraid of asking questions. Working with a licensed Realtor® provides relief from the stress of sorting through the details and deciding which option is best. So, let's take a look at some available options.
FHA Loan
The Federal Housing Administration (FHA) loans tend to have lower interest rates and require only 3.5% down. If your credit is a bit challenged, an FHA loan is an option as scores between 580-600 are acceptable depending on the lender.
One consideration of these types of loans is that you're going to be paying a mortgage insurance premium (MIP) because your downpayment is less than 20%. This payment is usually high, almost double what people pay with a conventional loan's PMI or private mortgage insurance. Additionally, you'll pay MIP for the life of the loan until you refinance or sell the home.
VA Loan
Single moms are eligible to qualify for VA loans through their own military service or as military widows. If you fall into either category, it's definitely a consideration as there are no private mortgage insurance or downpayment requirements. The Department of Veterans Affairs will back 100% of the financing. And as a single mom and retired military member myself, I'm well equipped to help you navigate this option should you qualify.
USDA Loan
If you're not opposed to living in a more rural area - and truthfully a lot of the areas that qualify are just on the outskirts of major cities - a USDA loan from the United States Department of Agriculture might be for you.
These loans feature very low interest rates, no downpayment requirements and are designed to help low-to-moderate income families. If you qualify, you're also eligible for 100% financing while the MIP is also less than that of an FHA loan.
These loans have income limits to qualify so you should review those before pursuing this option.
Conventional Loan
Conventional loans may not seem like an option but products like HomeReady only require 3% down. Some things to keep in mind is the credit scores required are higher along with a good credit history and with that lower downpayment and you'll also be required to pay PMI.
Individual Development Accounts
Individual Development Accounts or IDA's were designed to help people save for things like starting a business, education, and buying a home. These specialized bank accounts are deducted from your paycheck - pre-tax - and matched by the state's Temporary Assistance for Needy Families (TANF) program. There are some requirements to qualify so make sure to review those closely.
Grants
There are a variety of grant programs available designed to assist single parents trying to buy a home. And as a reminder, grants are monetary rewards that are not loans - meaning you don't have to pay them back. These grants can offer things like a percentage of the total loan amount, etc. so make sure to research those in your area to understand the qualifications clearly.
What, if any, are the requirements to qualify for assistance as a single mother?
It can be financially challenging enough in a two-parent household so It's easy to get discouraged as a single mom when you're dealing with a single income. However, staying realistic about your property needs and sticking to your budget will help with your chances. In addition, there are a few things that improve your chances of approval and make the process go smoothly when applying for any of these loans, though.
Credit
No matter which loan you consider, your credit score is going to play a factor in a mortgage lender's decision and terms. While some programs accept lower scores - most consider a credit score with a "Good" rating to be around 670. The higher you can get your score, the better terms you can get. Make sure your bills are paid on time and you review your credit report for any inaccuracies or forgotten debts to clear them up.
Debt-to-Income
Your DTI or debt-to-income ratio takes into account how much of your income is used up to pay off debts. Lenders look for a potential mortgage payment that's no more than 28% of your total gross income and shouldn't exceed 36% when the rest of your debts like student loans or credit card payments are added in.
Downpayment
Some of the benefits of the above-mentioned programs are low to zero downpayment terms. While some programs could potentially disqualify you for having a downpayment, others could offer more favorable terms if you're able to offer higher than required down payments, allowing you to borrow less and reducing risk for the lender.
Proof of Income
Have paystubs of at least 30 days ready to show a consistent income and W-2 forms for at least the past 2 years if not more. If you're self-employed, you'll need to provide additional documentation so be sure to confirm that with your loan officer.
List of Assets and Debts
Records of your bank, investment and retirement accounts should be ready to present as well as any records of debts such as car loans, credit cards, and student loan balances.
Additional Financial Records
If you've been given any money to assist in the purchase of a home, you'll need a gift funds letter. You may also be asked for rental history and information about a divorce decree, etc. Your lender or grant guidelines should provide this info.
Why would a single mother want to use assistance with a mortgage and not just ask friends or relatives?
Many times, a borrower wants to feel as though they are able to make their home purchase based on their own merits, this is what makes getting a co-signer such a personal decision. We've worked with a lot of single parents that say things like, "I know getting a co-signer is an option, but I want to do it on my own". It makes them feel more empowered to get assistance than to ask family or friends and that's perfectly fine!
How would a single mother start the process of applying for assistance?
Working with an experienced, licensed Realtor® is the smartest (And least stressful) decision you can make when starting your home search and looking into your options for assistance.
Charleston's Best Home Team offers a free buyer's consultation to kick off the process and walk you through the process every step of the way. Once we find out your individual needs, we're able to narrow down the payment assistance programs and options that benefit you the most then we personally provide you the information and connect you with one of our affiliated lender partners to assist you with the details of applying.
If you've made it this far, you should feel more empowered than ever to start your home search as a single parent. Becoming a homeowner as a single mom is not only possible, it can be done on your own terms!
Call or email us today to get started.
