Getting a mortgage as a single parent often is more difficult than it can be for a couple.
Typical lending standards may make it more complicated for a single buyer to qualify for a mortgage due to lower income amounts than a married couple’s combined income.
Fortunately, single parents have many mortgage options. We’ll share tips and considerations to getting a loan that will work for your unique life goals.
How to Budget for a Mortgage as a Single Parent
The biggest obstacle for anyone applying for a mortgage is proving you have the income to afford your monthly payments.
Married couples often have the benefit of two sources of income. For single parents, proving you can afford the mortgage may mean extra scrutiny of other lending factors.
These factors might include:
- Credit history
- Down payment amount
- Debt-to-income (DTI) ratio
Prior to starting the home search, budgeting will be essential to your success.
You will need to understand your monthly expenses, how much home you can afford, and all the costs involved in a mortgage.
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What Costs are Involved in a Mortgage?
Many first-time homebuyers focus mainly on the monthly mortgage payment, and may be unaware of the other costs involved.
This leaves many buyers unprepared for the true costs, and without enough money saved to cover the extra fees.
Some of the extra costs involved in a mortgage include:
- Down payment amount
- Closing costs
- Mortgage insurance premiums (MIP)
- Property taxes
- Homeowner association fees
A good lender will guide you through all the costs involved, but at that point, if you don’t have enough savings, it could take you a while to build it up. Your home buying process will be delayed.
Let’s break down some of the costs involved in a mortgage, and what a lender will look for when you apply.
Down Payment Amount
A higher down payment means more savings and benefits.
The good news for single parents is that many lenders allow down payment amounts as low as 3%, which makes homeownership more accessible for many.
The downside to a lower down payment is that you will have to pay mortgage insurance.
For a conventional loan, which is the most common loan type, a down payment of at least 20% eliminates private mortgage insurance.
Closing costs include fees for loan origination, title insurance, and an appraisal.
These fees generally range between 1% to 4% of your loan amount, depending on your loan type.
Single parents seeking a mortgage also must be aware of their credit score and history.
If you have a low credit score, a lender could deny you a loan because you appear to be too high of a risk, and may be unable to make your monthly payments.
Fortunately, many lenders take into account several other lending factors in addition to your credit score, but it’s wise to boost your score as much as possible before applying for a loan.
You can improve your score by making all payments on time, keeping credit card balances low, and not canceling any unused credit cards or accounts.
Mortgage Loan Options for Single Parents
The good news is, it’s highly likely you’ll be able to find a loan type that fits your life, even if you can’t afford a high down payment or have a lower credit score.
While it’s helpful to be in the best financial place possible prior to applying for a mortgage, it’s still possible to find a great deal while you’re working on improving your situation.
The following loan types may be suitable options for single parents looking for the right mortgage.
FHA loans are backed by the Federal Housing Administration, which makes approvals easier with more flexible lending requirements.
These loans are known to be a helpful, popular option for first-time homebuyers and single parents, because they require lower down payment amounts and credit scores.
However, as a trade-off for the more flexible requirements, FHA loans require homeowners to pay Mortgage Insurance Premium.
MIP includes an upfront MIP at closing, and an annual MIP that is paid monthly.
These payments do become less expensive each year, and they can be reduced if you have a shorter loan term or larger down payment.
While conventional loans are the most common mortgage type, they have a reputation for being more difficult for single parents to qualify.
This is because the better your credit score, the more options and flexibility you have with a conventional loan. Single parents may have more trouble qualifying if they have a lower credit score.
However, conventional loans provide a wide range of options, and depending on the lender, you may be able to qualify more easily.
Some lenders allow down payments as low as 3%, but a good credit score and high down payment unlocks better interest rates, cheaper closing costs, and no private mortgage insurance.
VA loans are backed by the VA, and are available to active members of the military, veterans, or surviving spouses.
Qualifying standards are much more relaxed, and there may be options for no down payment or closing costs.
With a VA loan, you’ll have similar options as you would with an FHA or conventional loan, but with more flexibility and benefits for your service.
Ready to Apply for a Mortgage?
Want to find out what type of mortgage you qualify for as a single parent?
Reach out to the lending professionals at River City Mortgage.
We love sitting down with first-time homebuyers to build a strategy that makes your home as affordable as possible.
River City Mortgage is ready to lend a hand as you navigate this exciting investment.