If you’re a single parent, it’s arguably more challenging to buy a home than for those in a partnership with dual incomes. Yet it’s easy to see why so many single parents are eager to purchase a house. Beyond finding a perfect kitchen and playroom, owning a home is an integral part of building a healthy financial future. And while homeownership may seem like an increasingly out-of-reach dream for single moms and dads, buying a house is definitely an achievable reality for most folks. To help inform you on this journey, we reached out to experts for tips on how to land a great mortgage as a single parent.
1. Leverage benefits
When applying for a mortgage, be sure to include any alimony and child benefit payments you receive. The most significant leverage a single parent has against lenders is their benefits. As a borrower, it’s essential to establish the capability to pay. So highlighting the monetary amount received from child benefits, tax credits, and maintenance fees are important as all of these can be taken into account.
2. Remember the 25% rule
Single parents have to carry a mortgage by themselves. With that in mind, it’s wise to leave plenty of financial wiggle room when shopping for a home. (An affordability calculator can help you determine what monthly payments you can swing.) As a single parent, there are more ‘what ifs’ to worry about, so it’s important to give the budget breathing room for emergencies and extra child care costs. They should aim for the monthly mortgage—including taxes and insurance—to be around 25% of their income. This way, there is enough to cover house costs, child costs, and still reach savings goals, such as saving for retirement and college.
3. Make a significant down payment if possible
No matter who you are or your financial and life situation, making a substantial down payment on a house will pay off. Getting a good mortgage rate can be a challenge for a single person. Making a big down payment will not only improve their chances of getting a good lender but also getting a better deal on the mortgage. It will also lower their monthly payments moving forward. Also to add, having a good credit score (740-plus is considered optimal) will improve the odds of getting a reasonable mortgage rate, because good credit lets lenders know you can keep up with financial commitments.
4. Consider specialty loans or down payment assistance
Can’t swing a large down payment? That’s OK. As a single parent, there is an opportunity to maybe be able to qualify for loans that require much less than the standard 20% down payment. A conforming, aka conventional, loan may only require a down payment as low as 3%, with a mortgage insurance add-on. One of the best loans for single parents is from the United States Department of Agriculture. The USDA loans are particularly helpful because most feature low-interest rates and do not require a down payment. The catch? You have to ensure that the property is within the USDA-eligible area. It also requires you to pay a mortgage insurance premium upfront, but it’s significantly lower than many other premiums.
And if you’re a teacher, firefighter, EMT, or member of law enforcement. the Good Neighbor Next Door program can get you up to 50% off on a foreclosed home.
5. Look for local loans
No matter what type of loan they ultimately try to secure, try to find a local lender. Working with a mortgage professional who is local to their market can be a huge asset. There are so many online platforms offering seemingly great deals, but that utilize loan officers out of the area or in call centers that may be completely out of the market. This can make sorting out market-specific details very challenging.
6. Beware of adjustable rates and multiple applications
The Federal Reserve may hike interest rates soon, so getting a mortgage with a fixed rate is critical. A 30-year fixed mortgage will allow a single person with kids to accurately forecast their monthly expenses. They should also watch out for prepayment penalties. These are penalties the lender would charge for selling the home within a set period of time. And beware of applying for multiple mortgages with different companies in a quest for the best offer. Each time you apply, they pull your credit, which reduces your credit score.