FINANCIAL WELLNESS

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Jun 2017

All The Single Parents: 4 Ways To Make Homeownership A Reality

Between running a household, working, and caring for your children, the thought of buying a home as a single parent could seem daunting at first. But in reality, it’s no different than purchasing a home under any other circumstances. In fact, you could qualify for more if you choose to disclose your child support or alimony payments as a source of income. Every home buying journey is unique and as a single parent, there are particular tips and strategies that can help you on your way to homeownership. Here’s what you should keep top of mind so that you can have a smooth mortgage process:

1. Grow your savings

Buying a home as a single parent means that covering the cost is up to you. One of the best ways you can prepare is by saving as much as possible. Seems kind of obvious, but cutting back on unnecessary costs or finding ways to earn some extra cash can significantly free up money for your new home — something many homebuyers don’t consider.

Make Your Down Payment a Good One

It’s usually a good idea to put down at least 5% percent of your loan amount, 20% if you want to avoid private mortgage insurance, and pulling from savings can be a good way to cover that cost. Keep in mind, some mortgage programs, like FHA, USDA, or VA loans, have different down payment requirements, so you may be able to put down even less.

If you have any questions about down payment requirements or would like to learn how to save for a down payment, talk to your mortgage banker. State and local government housing agencies often offer down payment assistance programs and are worth looking into if you require some help. The kind of help offered by these departments varies by city, county, and state, but are usually subject to income requirements. They’re usually intended to help families with low-to-moderate incomes gain access to affordable down payment options. Since different areas can have different average income levels, the limitations can vary drastically depending on where you live.

Your Nest Egg Can Help Cover Extra Costs

A healthy down payment can help you avoid extra costs like private mortgage insurance (PMI) and reduce your monthly payments, as I briefly mentioned above. You can also use your savings to cover other homeowner expenses like taxes, moving expenses, emergency maintenance and repairs, or closing costs.

2. Get your credit and qualification ducks in a row

Mortgage qualification depends on a few different factors. To get the best loan possible for you, it can help to pay special attention to your credit score and get your finances in the best shape possible.

Cut Back On Debt

The amount of debt that you carry can affect your qualification, so it’s a good idea to pay it down as soon as possible before you apply for a mortgage. Lenders will usually look at your [debt-to-income ratio DTI by measuring what you owe against how much you earn.

It’s important to keep your debt-to-income ratio relatively low — usually 45% or lower.

Because you’re buying your home with only one income to offset your debt, the less you have, the better.

Tend to Your Credit Score

Having the highest credit score possible can lead to big savings over the lifetime of your loan. The higher your score, the more likely you’ll get a lower interest rate, which leads to a lower monthly payment.

Credit score requirements can vary from lender to lender, but your Atlantic Bay mortgage banker can answer all your questions and help you find the best options to fit your needs.

Prepare Your Employment History

Your job history and income can both factor into your mortgage qualification. You will be asked to submit documents to help verify and report your income, so it’s a good idea prepare your information in advance. It’s also possible that your employer may need to provide employment or income verification, so keep that in mind as you prepare to apply for your mortgage. If you have any questions about verifications or qualification requirements, your Atlantic Bay mortgage banker is a wonderful resource.

3. Think about all of your income sources

When you apply for a mortgage, you’re not obligated to disclose how much you receive, if anything, in alimony or child support payments. You do have to report your income, which can include your salary, free lance earnings, money earned from rental properties, or social security payments, just to name a few. The total amount of money that you bring in plays a big role in determining what kind of loan you will qualify for.

Alimony or child support payments can affect your income qualifications when applying for mortgage.

If you do choose to disclose how much you receive in alimony or child support, there is a chance that this can be included as part of your income. Reporting as much cash flow as possible can help you qualify for a larger loan by increasing your income and reducing your debt to income ratio. If you have questions about the best way to report your finances, be sure to speak to your Atlantic Bay mortgage banker.

4. Consider special loan programs

There are different kinds of loan programs that are designed to help make homeownership more affordable. These programs usually have income limits and can be a good option if you have a moderate or low income level.

USDA

The U.S. income limits vary from county to county. USDA loans can only be used to purchase rural or suburban properties and are a great option if you want to buy a house outside of a metropolitan area. These loans offer flexible qualification requirements, the possibility to make no down payment, and no mortgage insurance requirements.

VA

The VA loan, created by Veterans Affairs, is considered one of the best options out there thanks to lenient credit score terms, no requirement for a down payment, and no private mortgage insurance. The only flip side to the VA loan is that it’s only available for active duty military members, reservists, veterans, or spouses of veterans (if widowed). But if you fit into one of those categories, then it’s worth looking into and asking your mortgage banker about.

FHA

The Federal Housing Administration, or FHA loan, also offers guaranteed loans. This program offers particularly low down payment requirements that clock in at just 3%. To qualify, you’ll need to demonstrate you have a an adequate and steady income for at least two years, but any child support you receive can be included in your income. This program is also a little more flexible in what kind of funds you can use for your down payment and make it easier to use gifted money to help increase your payment.

97% LTV Conventional

This loan option by Fannie Mae is a great choice for homebuyers with good credit, but limited funds for a downpayment. The 97% LTV Conventional loan requires that you haven’t purchased a house in the last three years. So the benefits include a minimum 3% down payment requirement, and there isn’t an income limit in certain areas — something other loans may require. But mortgage insurance will be required as part of your monthly payment if you’re putting less that 20% down. Though there aren’t any mortgage programs specifically for single parents, there are lots of options to help you on your own home buying journey.

Frequently Asked Questions

Chances are, if you're wondering about it, someone else has too. Here are answers to some of the questions we hear most often.

Can a single parent buy a home?
Yes. Single parents can qualify for a mortgage and purchase a home. The process is largely the same as for any other homebuyer. Lenders evaluate your credit score, income, debt-to-income ratio, and savings when determining what you qualify for. As a single parent, you may also be able to include child support or alimony payments as part of your income if you choose to disclose them, which can help increase the loan amount you qualify for.
What loan programs are available for single parents buying a home?
There is no mortgage program designed exclusively for single parents, but several loan programs may be particularly helpful depending on your financial situation. FHA loans offer low down payment requirements and allow child support income to be counted toward qualification. VA loans are available to eligible servicemembers, veterans, and surviving spouses and require no down payment and no private mortgage insurance (PMI). USDA loans offer no-down-payment options for homes in eligible rural and suburban areas. Conventional loan programs may also be available with low down payment options for qualified buyers. Your Atlantic Bay Mortgage Banker can help you compare programs and find the best fit for your needs.
Can child support or alimony count as income for a mortgage?
You aren’t required to disclose child support or alimony payments when applying for a mortgage. However, if you choose to report them as income, they may be counted toward your qualifying income, which can increase the loan amount you’re eligible for and improve your debt-to-income ratio. Lenders typically require documentation showing the payments are consistent and expected to continue. Your Mortgage Banker can explain what documentation is needed and how these income sources factor into your specific loan.
How much do I need for a down payment as a single parent?
The down payment amount depends on the loan program you use. FHA loans typically require as little as 3.5% down. USDA and VA loans may require no down payment for eligible borrowers. Conventional loans may be available with down payment options as low as 3% for qualified buyers. Putting down 20% or more generally allows you to avoid private mortgage insurance (PMI), which can reduce your monthly payment, but it’s not required for most loan types. Down payment assistance programs offered by state and local housing agencies may also be available depending on your income and location.
What credit score do I need to buy a home as a single parent?
Credit score requirements vary by lender and loan program. FHA loans generally allow for lower credit scores than Conventional loans. VA and USDA loans also tend to have flexible credit requirements. In general, a higher credit score gives you access to better interest rates and loan terms, which can make a meaningful difference in your monthly payment over the life of the loan. If your credit score needs improvement, your Atlantic Bay Mortgage Banker can help you understand your options and what steps may help you qualify.
Are there down payment assistance programs for single parents?
Yes. Many state and local government housing agencies offer down payment assistance programs that may be available to single parents who meet income requirements. These programs vary significantly by location and are generally designed to help households with low to moderate incomes access affordable down payment options. The availability and amount of assistance can differ depending on whether you are buying in Virginia, North Carolina, Florida, Georgia, or another state. Your Atlantic Bay Mortgage Banker can help you identify programs that may be available in your area.
What is the debt-to-income ratio requirement for a single parent mortgage?
Lenders use your debt-to-income ratio, or DTI, to measure what you owe each month relative to what you earn. As a single parent purchasing a home on one income, keeping your DTI as low as possible before applying can improve your qualification. Requirements vary by loan program and lender. Paying down existing debt before applying is one of the most effective ways to improve this ratio. Your Mortgage Banker can review your full financial picture and help you understand how your DTI affects your options.
Can a single parent qualify for a VA loan?
A single parent may qualify for a VA loan if they meet the eligibility requirements. VA loans are available to active duty servicemembers, veterans, reservists, and surviving spouses of veterans who died in service or from a service-connected disability. If you qualify, the VA loan offers significant advantages including no down payment requirement, no private mortgage insurance (PMI), and flexible credit terms. Atlantic Bay has extensive experience serving military families and servicemembers across Virginia Beach, Hampton Roads, and other military communities for the last 30+ years and can help you determine whether a VA loan is the right fit.

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The views and statements expressed are deemed reliable as of the publish date indicated and may not be accurate or reliable at any future date. The views and statements provided are those of the author. Discussions regarding any financial information provided are not intended as individual recommendations and do not reflect the views or advice of Atlantic Bay Mortgage Group, L.L.C. The views expressed are subject to change at any time in response to changing circumstances in the market. *For refinances, the total finance charges may be higher over the life of the loan. Atlantic Bay Mortgage Group, L.L.C. disclaims any obligation to publicly update or revise any views expressed or information given. Loan programs may change at any time with or without notice. Information deemed reliable but not guaranteed. All loans subject to income verification, credit approval and property appraisal. Not a commitment to lend. Atlantic Bay Mortgage Group, L.L.C. NMLS #72043 (nmlsconsumeraccess.org) is an Equal Housing Lender. Located at 600 Lynnhaven Parkway Suite 100 Virginia Beach, VA 23452.