Housing and Mortgages for Single Parent Families
This guide aims to provide single parents with the necessary tools, resources and guidance required when making an informed decision about getting on the property ladder.
After reading and digesting this guide, readers should have a basic grasp of the following:
- The pros of getting onto the property ladder.
- How to determine whether buying a home is the best option for you.
- The process of acquiring a mortgage.
- Steps to consider ahead of prequalification.
- Any special considerations that you should keep in mind, as a single parent.
- Who to reach out to for help, should you need it.
- How to clean up bad credit.
While being a single parent comes with trials and struggles, single parenthood is no reason to believe that you cannot realize your dream of homeownership. Thanks to the internet as well as the government’s concerted efforts to ensure a large percentage of the populace has a roof over their heads, with some guidance, financial resources and a little support it is now significantly easier to get onto the property ladder.
This guide has been created to walk you through the process of buying a home. It is important to understand the entire process before you begin so that you will be well-prepared to complete each step, in order.
Part 1: Weighing Your Options
As a single parent, you must weigh your options before deciding whether homeownership or renting is the right option for you. Since you are the only wage earner, you have only your paycheck to consider when thinking about whether you can afford a mortgage. After all, it is not only the mortgage payment that you must think about, but also insurance and property taxes, home maintenance costs and the cost of any expensive repairs that may be necessary, both in the short and the long term.
Gather a list of your income sources and amounts, your assets and your debts. Figure out how much extra money you have at the end of the month after paying all of your obligations except for your current rent or house payment. Keep in mind any changes coming up regarding your finances. For example, if you are paying or receiving alimony for only one more year, or if your oldest child will turn 18, reducing the amount of money that you pay or receive for child support, write this down. Also, since you are the sole source of income, think about whether you have the job security necessary to make a large financial commitment. Once you have a good picture of your current financial situation, consider the following:
Insurance and Property Taxes
These are usually included in your monthly mortgage payment. The price for homeowners' insurance depends on where you live and which company you use. Your property taxes also vary depending on the location. Some towns in your area may have higher or lower taxes than others, so this is something to keep in mind when house-hunting. The premium is normally split up over 12 months, so a $1,200 tax bill will add $100 to your monthly mortgage payment. If you rent, you do not pay these fees directly, though they may be built into your rental fees.
Home Maintenance Costs
Keeping your new home properly maintained can help reduce the chance that you will have to pay for a large, expensive repair in the near future. This routine maintenance may range from keeping your shrubs trimmed to replacing roof shingles. By allowing these repairs and maintenance to sit undone, you may be putting your home at risk for insect infestation, water damage and other issues. In some cases, you may be able to do these maintenance projects yourself, or you may have a friend or family member who can handle them for you. Other times, however, you may need to hire someone. These costs should be factored in when you make your decision, and you should put money aside toward home maintenance each month. When you rent, this is typically the responsibility of the landlord.
Before you buy your home, you will have it professionally inspected. The inspector can let you know about any large repairs that may be looming in the near future. These may include furnaces or central air conditioners that need replacing, a leaky roof that needs to be completely replaced, and problems with the foundation or chimney. There may also be cosmetic issues that you would like to attend to, such as old flooring, broken cabinets, ugly wallpaper or a peeling ceiling. There may be surprise issues as well, so you would need a house-related emergency savings account in case you need to replace a hot water heater or call an electrician with little or no notice. If you rent, then the landlord would take care of repairs. He or she might not cover cosmetic issues, however, and you might not be allowed to make repairs or replacements on your own.
Part 2: Pros & Cons
Advantages to Home Ownership
As a single parent, buying your own home can give you a sense of accomplishment and independence. You may also be providing an excellent example of good financial management for your children. A home is an investment, and you may be able to write part of your mortgage payment off on your taxes. If the value of your home rises, you will build equity and may be able to re-sell in several years and make a profit. Or, if you keep your home for the long term, you will eventually pay it off and have no mortgage to pay in your golden years. You can modify your home however you'd like, plant a garden, add or remove trees, knock down walls, replace windows, and anything else that you can think of.
Disadvantages to Home Ownership
It is difficult to leave a home that you own. If, for example, custody agreements with your children's other parent necessitate a relocation, you would need to sell your home first. If your job situation changes and you cannot afford the home any longer, it may be difficult to sell quickly. Also, if the value of the home decreases, you might not be able to recoup the purchase price. Any improvements that you must make or that you prefer to make are your financial responsibility.
Once you have gone through the list of pros and cons for both renting and for purchasing, you may decide that purchasing is the right decision for you. If that is the case, you should proceed to the prequalification process.
Part 3: The Process - Getting Started
Whether or not you have had credit problems in the past, buying a home is a stressful endeavor. If you are proceeding without a partner, be sure that you have support in the form of a family member or close friend. You can bounce ideas and concerns off of this person as you go through the home-buying process. You should also bring someone along with you when you look at homes, particularly if you are visiting a home for the second or subsequent time. Someone else may see issues that you do not, and this may be even more helpful if that person is not emotionally invested in the home-buying process.
You may also find it helpful to seek out the services of a financial counselor or credit adviser. Such a person can help you take a long, hard look at your finances to determine whether this is the best time for you to buy a home. If you have any legal obligations pertaining to your children and custody arrangements, an attorney may also need to be consulted, particularly if you want to move out of your local area.
When you have decided that the time is right for you to begin pursuing homeownership, you will need to meet with a lender to become pre-qualified. This is the time that you will provide your financial documentation that proves that you have the resources available to pay for a house payment. Your lender will look over your documents and will tell you how much money the bank will lend you. The prequalification number is only an estimate. The actual amount of funding for which you qualify may be greater or less than this amount.
When you meet with your lender, he or she will tell you exactly what you need to bring with you. Here are some of the documents that you are likely to need:
A driver's license, social security card or other documentation proving that you are who you say you are is a necessary document to provide. Depending on the lender's policy, you may also need a current utility bill to prove your address or additional documentation.
Pay stubs or a letter from your current employer will show the lending officer how much money you make. If you receive child support or alimony and would like this considered, bring the appropriate documentation. If you have been with your current employer for a short period of time, you may need to bring previous income documents. You may also need to draft a letter explaining any recent unemployment.
Information on Assets and Debts
Bring a current bill for each of your debts. These include car payments, credit card payments and other loan payments. If you pay child support or alimony, provide this documentation as well. Also, bring along statements from your savings and checking accounts, as well as stocks, bonds and money market accounts so the lending officer has a complete picture of your assets. If you have recently paid off a debt, bring documentation along; sometimes there is a lag between the time that you pay off a bill and the time that you see this reflected on your credit report.
It is a good idea to request a copy of your credit report a month or more in advance of visiting with your lender. This way, you can examine the report for any errors and have them corrected. You will not need to provide credit reports, as your lender will request them on his or her own, but you must allow him or her to access the information about your credit and your FICO scores. These will help determine whether you will qualify for a mortgage, as some banks and lending institutions have minimum score criteria in place. Your lender will have more information on this.
An important consideration to keep in mind is that just because the bank says that you can spend a certain amount, it does not mean that you must spend that much, or even that it would be beneficial for you to do so. Take a long, hard look at your finances to determine what you can really afford. It may be that on paper, you can afford to spend a certain amount each month, but in reality, you cannot. You might contact a financial adviser or counselor to talk about these issues. A professional may be able to help you set priorities and make a reasonable budget before you even begin looking at homes.
Other Pre-Qualification Considerations
Another important aspect of the prequalification process to keep in mind is that your credit score and credit history may determine the interest rate for which you qualify. The lower your interest rate, the lower your monthly payment, as well as your overall investment, will be. If at the time of your pre-qualification you find that you qualify only for a high-interest loan, speak to a financial adviser to determine whether you would be better off waiting a year or two and improving your credit score, than proceeding with a less-than-optimal interest rate.
It is also important to understand the difference between a variable and a fixed interest rate. If you qualify for a fixed rate of interest, then the rate will stay the same throughout the life of the loan. A variable interest rate may be easier to qualify for if your credit score is considered risky, but carries risks of its own: Since the rate will fluctuate, your monthly payment may also fluctuate, and some of the fluctuations may be quite substantial. This is another topic to speak to your lender or financial counselor about.
Be sure to ask your lender about special programs for single parents or for low-income families. You may also check the resources at the bottom of the page for more information.
Part 4: The Process - Looking For Your Dream Home
Once you receive the amount for which you qualify, you are ready to start house-hunting. Remember what your limit is for spending, and do not allow your real estate agent to talk you into considering homes outside of your desired price range, even if your lending officer says that you can afford more.
Make a list of what you would like in a home. Consider the schools, taxes, crime, and other criteria when scoping out neighborhoods. If one certain location is very important to you, be sure to let your real estate agent know. Determine how many bedrooms you need, how large of a yard you would like, and what type of flooring you desire. Remember that you will need to maintain the space, and also that you will most likely live in the house for years to come, so be careful to look for a home that is within your price range, large enough for your family, but not so old or cumbersome that you will be unable to attend to basic maintenance.
Do not be afraid to re-visit a potential home several times, at different times of the day and evening. Drive through the neighborhood at different times, too. This will allow you a complete picture of the goings-on in the area, as well as how the house looks and feels at various points throughout the day. Before you consider bidding on a home, double-check the home's school district, to be sure that it is in the district that you want. Also, check the sex offender website for your state to keep your children safe from potential predators. Once you sign the paperwork and your bid is accepted, it is difficult to get out of the contract later, if you find any unsavory information about the area.
Your real estate agent will walk you through the process of negotiating a price on the home, particularly if you would like to pay less than the seller is asking. If you do offer the asking price, the process may proceed more quickly. If you have less cash on hand than you will need for the closing, you might ask the seller to pay part of your closing costs. This may or may not be allowed, depending on the particular mortgage program you are using, and the seller may or may not be amenable to this suggestion. All of these are things that you should ask your real estate agent about.
Once you have a signed contract, you will need to have the house inspected and appraised. This will likely be required by the lending agent, and it should also be something done for your peace of mind. The inspector will check the house for signs of wear and tear, damage, major repairs that may be looming, major repairs that were recently done, insect or rodent infestation, and other things that might affect your ability to maintain the home. Be aware that even though the sellers are required by law to disclose certain conditions affecting the home, there may be items that the seller is not aware of. If something is found in the inspection that makes you not want to purchase the home, your real estate agent can walk you through the process of re-negotiating the paperwork, lowering the purchase price or asking the seller to fix the problem. In some cases, this may make the contract null and void, and you may need to start the process over again with a new house. Try not to get discouraged; delays are often par for the course in buying real estate.
The bank will handle the appraisal. The purpose of this is to make sure that the house is worth what you are paying for it. This is done to protect you and also to protect the financial institution. The bank does not want to overpay on a house that will likely not sell for the price that you are paying for it. If the appraisal comes back too low, you will need to re-negotiate the selling price, or you may need to void the contract and look for a new home.
Part 5: The Process - Closing On Your Mortgage
When the inspection is done and the house passes the appraisal, you will need to wait several weeks for the bank to complete the financial documents necessary to close on the house. During this time, you might be asked to provide additional paperwork. For example, if you have any mars in your recent credit history, you may be asked to explain them or provide documentation that the problem was resolved. If you have lived in your current rental home for less than a year or two, you might need to provide the name and contact information of your previous landlord. Be sure to respond to these requests quickly to keep the process moving along smoothly.
It is possible that during this time your approval amount will be less than your pre-qualification amount. If this happens, you must let your real estate agent know immediately. He or she will then walk you through the possibilities of re-negotiating, if possible. Another option is that you may need to start the process over with the lower amount.
During this time, you should also choose a real estate attorney to represent you at the closing. This is usually a simple process, and the attorney will be there just to look over the paperwork and to advise you if something seems amiss. He or she can also answer any questions that you have about the process. If you do not know an attorney to use, ask friends for recommendations, or ask your real estate agent, who will have worked with many attorneys.
Before your closing, you will need to gather together the money required by your lender for closing costs. Depending on your loan, this may be nothing at all, or it may be several thousand dollars. If you receive any of the money as a gift, you will need to document that it is a gift and not a loan. These closing costs cover the taxes for the remainder of the month during which you are closing, the attorney's fees, the fees for running a title search, and other items. Depending on your loan, you may also need to pay "points," which are a percentage of the mortgaged amount. Some of these costs may be absorbed by your seller. You will know ahead of time exactly what you need to bring with you.
On the day of your closing, be prepared to sign many documents. Your lawyer will look them over to be sure that you are agreeing to terms already decided upon. At this point, you will know what your monthly payment will be. This is the time to ask any lingering questions regarding the contract, as once they are signed, you are responsible to fulfill the terms of the purchase agreement.
Congratulations! At this point, you will receive the keys from the sellers or their representative, and you are a homeowner. Unless the contract specifies otherwise, you are free to begin cleaning, painting, sprucing up, gutting and doing whatever else you would like to do in order to make the house your new home. In some cases, the seller will ask for a certain period of time after the closing to continue to inhabit the house, while paying you rent. This is something that will be discussed in advance of the closing.
Part 6: Final Points to Consider
As a single parent, you may have had problems with your credit in the past, or you might feel that you have too low of an income to qualify for a mortgage. Don't lose hope! There are programs to assist people in these situations.
An FHA loan is federally funded and may have flexible criteria depending on the exact program. If you make less money than others in your area, you may qualify for special programs that allow you to buy a home without a down payment, or which may help you with closing costs.
HUD, or Housing and Urban Development, homes are those which have been abandoned or foreclosed upon. They are also a good deal for someone on a limited income, particularly if you are handy and able to perform basic repairs easily or inexpensively.
Habitat for Humanity is a non-profit organization that helps those on a limited budget afford a modest home. The organization actually helps you to build your home, and you are expected to contribute "sweat equity" to the project.
If You Cannot Buy Right Now
If you have determined that you are not in a situation where it would be feasible to pursue homeownership, but would like to in the future, there are some things you can do to make it possible.
Clean Up Your Credit
Begin making lifestyle changes if your credit history is not very good. While you may have mars on your credit history from a divorce, you can start right now to rebuild your credit. Stop using credit cards, if possible, and pay them off as quickly as possible. Contact a financial counselor to help you make a budget if you are having trouble. Also, a counselor might be able to work with your credit companies to lower your payments or to consolidate your bills. One of these solutions may make it possible for your credit score to rise enough to allow you to qualify for a mortgage.
Apply for any other programs for which you qualify in order to free up funds that you might be able to save toward your down payment, and also those that might help you to make more money. A single mother, for example, might qualify for a grant to help pay for further education, allowing her the opportunity to boost her income level and make homeownership possible. You might qualify for assistance with food or your children's health care temporarily, to allow you to put money toward housing.
If you are having trouble securing any housing at all for yourself and your children, contact your local department of social services. They can put you in touch with your state's programs for subsidized housing. If you rent a home through Section 8, the Federal housing program, you might be able to one day purchase the home. In the meantime, you might be able to live in transitional or some other type of government-funded housing.
Contact Habitat for Humanity to discuss your eligibility to help build a modest, low-cost home for yourself and your family.
Look at the lists of HUD homes available in your area. These are often low in cost when compared with others, and might require handiwork.
If you are having trouble securing housing for your family and you are unable to purchase a home right now, you might look into Section 8, a Federally-backed program that places families in affordable apartments. There are often waiting lists, so if you feel that your housing situation may be on tenuous ground, it is better to contact Section 8 sooner rather than later.