Home Loan For A Single Mother: Achieve Your Dream Home
Being a single mother is a tough job. As a single mother, you’re not only responsible for your child (or children), but also for all of your household’s financial matters. Juggling all of these responsibilities is a challenge, to say the least. For many single mothers, homeownership may seem like an unachievable dream; the good news is this isn’t true. Just because you don’t have the financial support of a partner doesn’t mean you can’t buy a home to raise your family in. We offer you a guide for obtaining a home loan as a single mother so that you can achieve your dream of homeownership.
Preparing For Down Payment
Obviously, coming up with a down payment is a lot easier when a household has two people earning income. For single mothers, making a down payment for a conventional loan may not be financially feasible, especially since the median down payment for first-time homebuyers in 2018 was 7 percent, according to a survey by NAR (National Association of Realtors). Fortunately, as a single mother, you may be able to take advantage of a down payment assistance program.
Down Payment Assistance Programs
There are many different types of down payment assistance programs available. Most states have state-specific down payment assistance programs that provide a percentage of the mortgage to the buyer that can be used towards the down payment. These down payment assistance programs include:
- Brentwood Down Payment Assistance Program (CA)
- Downey First-time Homebuyer’s Program (CA)
- First Home Mortgage Program (CA)
- MyHome Assistance Program (CA)
- State Housing Initiatives Partnership Program (FL)
- Hardest Hit Fund Down Payment Assistance (FL)
- Orange County Down Payment Assistance Program (FL)
Beneficial Home Loans For Single Mothers
Conventional loans tend to require the largest down payment. Lenders are taking a risk and the bigger the down payment is, the more it helps offset that risk. The size of the down payment also affects conventional loan terms. For example, the smaller the down payment is, the higher the interest rate is likely to be. As a single mother, consider a government-backed loan program. Some of the beneficial home loans available to single mothers and the eligibility requirements follow:
1. FHA Loan
FHA loans are insured by the FHA (Federal Housing Administration). This means that approved lenders that issue FHA loans are less at risk of losing money should the borrower default,making it easier for single moms to qualify. What makes them particularly attractive is that only a 3.5 percent down payment is required–and that down payment can be made using money gifted to you by family or friends (the only requirement for such a gift is that the person gifting you the money must write a letter stating that the money is a gift and not a loan). Here are the qualifying requirements:
- A credit score of at least 580 (you’ll have to pay a 10 percent down payment if your score is between 500 and 579)
- You must make a down payment of at least 3.5 percent
- A debt-to-income ratio that’s less than 43 percent
- The home the loan is to be used on must be your primary residence
- You must be able to prove that you are employed and have a steady income
- You will have to pay private mortgage insurance
2. VA Loan
If you are a vet or service member or you were married to a vet who passed away while on active duty (or passed away as a result of an injury experienced on active duty), then you can qualify for a VA loan, which is backed by the VA (Department of Veterans Affairs). VA loans are an incredible option if you qualify since no down payment is required. You’re eligible if you meet one of the following requirements:
- You served 90 consecutive days of active service during wartime
- You served 181 days of active service during peacetime
- You were in the National Guard or Reserves as an active member for at least six years
- You were married to a service member who died either in the line of duty or as a result of a disability experienced while on duty
While no down payment and no mortgage insurance is required, you will have to meet the following requirements as well (this can vary from lender to lender):
- You must have a credit score of at least 620
- You must have a debt-to-income ratio of less than 41 percent
More information on VA loans can be found here.
3. USDA Loan
If you’re interested in a home in a more rural or suburban community, then you might be eligible for a USDA loan, which requires no down payment. The following are the eligibility requirements:
- The house must be located in a qualifying rural or suburban area
- You must be a U.S. citizen or permanent resident
- You must be able to prove that you have had a consistent income over the past two years
- You must not have had any debts that went to collections in the past year
- You must have a credit score of at least 620
- You must have a debt-to-income ratio of 41 percent or less
Loans for Bad Credit
One of the factors that can limit your options when it comes to qualifying for a home mortgage is your credit score. Your credit score gives lenders an idea of how big of a financial risk you are. Unfortunately, because single moms usually have to depend on their own income to raise their families, it’s not uncommon for them to have poor credit as a result of financial hardships in the past (the process of divorce, for example, can be a real strain on one’s financial situation). While it can be difficult to qualify for conventional loans with bad credit, you might be able to qualify for a government-backed loan program, such as the FHA loan, which has less stringent credit score requirements.
What Lenders Consider When Evaluating Your Application
Lenders will look at a number of different things to identify your financial situation (i.e., your ability to make mortgage payments on time and in full) as well as your financial responsibility. Lenders typically check these items:
Your credit score provides lenders with an overall idea of your financial situation. A low score indicates that you may have had some financial hardship or that you were financially irresponsible. Things like late payments, collections, bankruptcies, and foreclosures all contribute to a low score. The lower your score is, the bigger a risk the lender will consider you.
Debt-To-Income Ratio (DTI)
The DTI refers to how much debt you have versus what you make. It doesn’t matter if your income is enough to comfortably cover your potential mortgage payments every month if your debt is massive to the point where you’ll be living paycheck to paycheck if you’re granted the mortgage. Your DTI gives lenders an idea of whether or not you can take on the additional debt of a mortgage.
Down Payment Percentage
The bigger a down payment you can make, the better. A large down payment can often help to offset a low credit score or a high DTI. This is because the lender is more likely to make their money back if you default and they’re forced to foreclose if you’ve already made a large contribution towards the home’s price. It’s why lenders don’t require private mortgage insurance if you make a down payment of 20 percent or more.
Home Buying Assistance Programs
If you need financial assistance when it comes to paying for your home loan, there are several types of home buying assistance programs available, including:
Mortgage credits are federal income tax credits for first-time homebuyers. They help to offset the cost of paying mortgage interest by reducing your annual taxes. The IRS caps the maximum mortgage credit you can receive at $2,000 a year; however, you can use your mortgage credit in conjunction with other programs, including down payment programs.
Profession Based Programs
Certain home buying assistance programs are available to borrowers belonging to certain professions. For example, the Good Neighbor Next Door program (which is sponsored by HUD) was created for homebuyers who are law enforcement officials, emergency medical technicians, teachers (pre-kindergarten through high school), and firefighters. The Good Neighbor Next Door program provides substantial assistance in the form of up to 50 percent off the list price of the house you’re buying.
State And Local Assistance Programs
There are many first-time homebuyer assistance programs offered on a state and local level to look into. These types of programs are meant to attract new residents and to help improve the local economies. Such programs typically provide grants that don’t have to be repaid or low-interest loans (that include deferred repayment that can be used to cover closing costs or the down payment).
Child Support Counts As Income
Lenders will look at your income to determine if you have the means to make your mortgage payments (even if you go through a government-backed loan program and don’t have to make a down payment). Note that if you’re receiving child support, lenders will consider this as part of your income, which should make it easier for you to qualify.
The Best Way For A Single Mother In Buying A Home
As a single mother, there are many different types of loan programs and financial assistance programs that you can take advantage of to qualify for a home loan and to help you pay for it; however, it all depends on what your personal situation is. For example, if you have great credit but can’t afford to make a down payment, you might want to apply for a conventional loan along with a down payment assistance program. If you have poor credit, an FHA loan might be your only option. Do your research to find the right combination of loan and financial assistance programs that can benefit you the most.
For any questions on home loans for single mothers please contact us here or call (530) 244-6830. We would be happy to provide you with more information!