Home loans for single parents

Having the financial means to afford a home is difficult for most would-be homebuyers. It can be even more difficult for single parents with one only source of income. If you’re a single parent who wants to purchase a home, don’t let the daunting task of saving up a down payment dissuade you from fulfilling your dream. Here’s what you need to know to make that dream a reality.

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Tips for saving up a down payment on a single income

Trying to save for a down payment while raising children on a single income can be difficult, especially as the costs of both are increasing. To help you reach your goal, consider:

• Government assistance. Depending on where you live, different states offer different down payment assistance programs. In Florida, for example, qualifying first-time home buyers can get $10,000 to $30,000 for down payment and closing costs. Check with your local housing authority to see what programs you might qualify for.
• An FHA loan. The Federal Housing Authority provides home loans with down payments as low as 3.5%.
• Setting a goal. How much do you need to save? How long will it take? Set a clear goal and stay focused on the finish line.
• Budgeting. A budget is essential to any financial plan. List all the money you take in and try to find ways to cut down on the money going out.
• Getting a savings account. High-interest savings accounts are solid options if you’re saving for a goal, such as a down payment. Not only do the accounts let you earn interest, but they also have features to help you save.

Down payment gifts

If coming up with a down payment to purchase a home isn’t feasible, having someone gift you the money can be an option. However, there are rules and regulations that homebuyers must adhere to when using gifted funds for a down payment.

The two main rules to be aware of are the source of the down payment and the amount. The money for the down payment must come from a family member, spouse or domestic partner. And how much you can be gifted depends on the type of loan. If you’re taking out an FHA or VA loan, the entire down payment can be a gift. But if you’re taking out a conventional loan, all of your down payment can be gifted only if you’re putting down at least 20%.

You’ll also need to properly document the source of the gifted funds. A gift letter is required that must be signed by you and the donor. The letter must include the amount of the gifted funds, the name of the donor, your relationship to the donor and a clear statement that says the money is a gift that doesn’t need to be repaid.

The National Association of Realtors’ 2016 profile of home buyers and sellers reveals the following statistics:

• 66% of recent home buyers were married couples
• 17% were single women
• 7% were single men
• 8% were unmarried couples

Can I afford a home as a single parent on a low income?

Potential homebuyers with a low income might find it difficult to know where to start when determining whether they can afford to buy a home. Whether you’re a single parent or have a spouse, the requirements for securing a home loan are the same. Here are some tips for helping single parents become homeowners:

1. Determine how much you can afford. A good place to start is to determine how much you can borrow using our mortgage affordability calculator.
2. Look for low-down payment loans. Once you know how much you might qualify to borrow, take a look at some of the more accessible home loan options such as FHA and VA. These two loans offer low-down payment options — even no down payment in some situations.
3. Look for HUD homes. A HUD home is a home that had an FHA-insured mortgage that has been foreclosed on. These homes are usually sold at a steep discount.
4. Accept a gifted down payment. If you’re lucky enough to have a family member who can contribute to your home purchase with a down payment, this eliminates one of the major hurdles to homeownership.

Find out how much you can borrow

Low down payment options

Coming up with a down payment of 20% to purchase a home can seem almost impossible to many. But there are low down payment options available.

• FHA. The most popular — and easiest to qualify for — home loan with a low down payment is the FHA loan. With an FHA loan, you’re only required to put down 3.5% of the purchase price. Credit requirements are also less stringent. You need a minimum credit score of at least 580. If your credit score is between 500 and 579, you might still qualify with a down payment of 10%.
• USDA. The US Department of Agriculture’s Rural Development mortgage program offers limited home loans with 0% down. The catch is that you have to be willing to purchase a home in eligible rural areas. USDA home loans come with two fees: a 1% upfront guarantee fee that can be rolled into the total loan amount and a 0.35% annual guarantee fee.
• VA. Loans backed by the US Department of Veterans Affairs are designed for qualifying veterans, active-duty servicemembers, members of the National Guard and Reserves and their families. VA loans offer up to 100% financing with no down payment required.
• HomeReady. Backed by Fannie Mae, this program allows you to purchase a home with a 3% down payment if you meet certain requirements. It’s intended to hep low and middle income buyers purchase a home.
• Conventional 97. This program, also backed by Fannie Mae, is another option if you only have a 3% down payment.

Can a mortgage broker help me?

Mortgage brokers specialize in helping borrowers in difficult or unique circumstances. They can help you find lenders who accept government assistance as a source of income and will help you work out how much you’ll realistically be able to borrow.

Mortgage brokers typically charge 1% to 2% of the loan amount. This fee is either paid by the homebuyer or the lender. If you’re paying the fee, you can either roll it into your mortgage or pay for it up front.

Bottom line

Purchasing a home as a single parent can be difficult, but there are affordable options available. Compare mortgage products to find the one that fits your personal and financial situation.

Frequently asked question

• Do I have to have a down payment to get a mortgage?

  If you qualify for a VA loan, you might not have to come up with a down payment. But in most situations, yes, you’ll have to put some money down. Having a family member gift you the down payment is also an option if needed.

• Do I have to include child support income when I apply for my mortgage?

  For most mortgages, you’re not required to disclose child support or alimony that you receive. But it’s a good idea to include it since it could help you qualify for a better loan.

• Do I have to disclose child support payments on my mortgage application?

  Yes. Child support is treated as debt, just like a car payment.

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