News flash: Recent trends in home buying reveal a rise in the number of single buyers. This is primarily due to single women outpacing the number of single men as a percentage of home buyers. According to studies, nearly 17 percent of all U.S. home buyers were single women— that’s 10 percent more than males.
Statistically, at a time when a lot of young adults are postponing marriage, the number of Americans buying a house on a single income is substantial. According to the mortgage software firm Ellie Mae, as many as 47 percent of millennial home buyers last year were unmarried.
And, although a rising trend, buying a home independently does not come without its own unique hurdles to securing the American Dream. On top of the already grueling list of unavoidable steps to take during the home buying process, there are additional measures individuals shouldn’t avoid to ensure a successful process.
Set your Home Buying Goals
Whether you’re male or female, qualifying for a loan with one income is difficult. That is, it’s much easier to obtain approval with two incomes — even if both are relatively modest.
That’s why it’s important to set a comfortable and obtainable goal. Make sure you have a secure enough job, and have enough money saved to buy a house. Being on your own, especially in a life-changing event, is scary — especially when you are 110 percent responsible for all financial decisions.
I guess what it boils down to — like the old adage, often two are better than one. Saving for a down payment takes double the amount of time. Finding individual time to solely dedicate to looking at properties can be difficult. Not to mention, two hands are better than one when it comes to moving and fixing up a place.
Luckily, experts say the days of a needed co-signer are over. Of course, this also means lenders will be looking at one credit profile — yours. This could prove an advantage or disadvantage when it comes to being approved, depending on your current credit situation.
Once you set a goal, consider the bigger picture. Ask yourself if you are happy staying put in the city you currently reside. Or do you still want to live up the single life a bit more and plan to travel and move around before settling down? Ask why you are wanting to buy a home. Most importantly, what are your future financial goals, and how does owning a home affect them?
Next, put your nose to the grindstone and gather as much research and advice as possible. The U.S. Department of Housing and Urban Development offer a state listing of local government and other sponsored organizations that offer help locally.
The best solution is to stop and consider the absolute maximum amount you can pull back with spending. Pause and consider what type of life you are envisioning for yourself, and if owning a house is getting you closer to reaching your goals. Sometimes, what makes the most sense financially does not make the most sense emotionally. Be practical. It’s OK.
Budget for Home Buying with Every Goal in Mind
Once you decide owning a home is the right decision, it’s time to figure out how much you can feasibly set aside.
Consider setting aside a considerable amount of your income. Channel a time when you were a penniless college student or fresh-out-of-school intern. Be okay with substituting swanky dining opportunities for happy hour specials. Remember, it’s only temporary.
Speaking of college, paying off student loans should always serve as a wise first step. Really, any type of credit card bills should always be paid on a timely manner.
You’ll also want to avoid doing anything that could hurt your credit, such as making a big credit card purchase right before or after you apply for a home loan. And avoid canceling old credit cards. This actually reduces the average age of your accounts and lowers your credit utilization ratio, two factors that could genuinely affect your approval.
It’s always a good idea to review your credit report beforehand, especially for solo buyers. You can get a free copy once a year, from all three credit bureaus. Make sure that it doesn’t contain any mistakes. You want to avoid looking like a risk.
If you are like 73 percent of Americans, you’ll want to tack on extra allotted time when saving to ensure you’ll have less debt when applying for a loan. This will not only allow for a better rate, but also a larger loan. How? Because not only will it increase your overall credit score but also improve your debt-to-income ratio.
And, the more time spent the better chances you have for providing a solid down payment. This can range anywhere from a minimum of 5 percent to the ideal amount of 20 percent or higher of your mortgage payment. The more cash you can fork up, the more money you could potentially save in the long-run.
Carefully Consider All Home Buying Mortgage Options
As mentioned earlier, 20 percent is the agreed upon value for an ideal/conventional mortgage down payment. And, this large lump sum proves difficult for the average home-buyer, let alone someone drawing from only one savings.
An alternative to the conventional mortgage is a government-insured loan. These have a much smaller list of requirements. The HomeReady mortgage program through Fannie Mae offers home buyers limited funds for down payment and closing costs.
Singles getting a mortgage with only one income should look at Federal Housing Administration or FHA loans, which offer lower interest rates and require lower credit scores to qualify. However, these do come with their own caveats. For example, the popular FHA mortgage requires you to pay an upfront insurance payment as well as a monthly premium.
If you do go the FHA route, the Homeowners Armed with Knowledge (HAWK) program will cut you a break on mortgage insurance costs if you go through housing counseling.
Consider making a down payment of less than 20 percent. Yes, by law the lender requires private mortgage insurance, or PMI. The cost of this type of insurance varies based on the size of your down payment and your credit score, but can range anywhere from 0.03 to 1.5 percent of the total loan amount.
However, this option will still leave more room to budget for a financial event that could leave you wishing you had access to more money. Say you lose a job for three months. An extra US$20,000 would be a nice safety cushion. And, if you lose your source of income, you can’t take home equity out via a cash-out refinance or home equity line of credit (HELOC).
Luckily, there are specialized products to protect homeowners from these types of events. Known as mortgage protection insurance or MPI, this is beneficial for those depending on one account to fund their mortgage. Not only does it provide an additional cushion of protection, but also peace of mind.
Don’t Go Through the Home Buying Process Alone
Saving up for a house is only part of the battle. During the process, you’re probably going to have second thoughts about your decisions.
You’ll worry you are not finding the best place that fits your lifestyle. You might contemplate whether or not you should reconsider your price range. You might have doubts about your ability to negotiate a fair deal.
Make sure you connect to your lender on a personal level. By making your loan officer aware of your financial situation early in the game, it can help speed up the lengthy and complicated approval processes — not to mention relying on a single point of contact helps streamline financial management. This is seen as a win-win situation for both involved parties.
If necessary, have a co-borrower on the loan. Banks are not allowed to discriminate based on marital status, but tighter lending standards can potentially pose a challenge to single buyers because they only have their own income to qualify for a loan. By providing your trusted lender with your co-borrower information, you can help clear the underwriting hurdle — especially if you don’t have a long credit history.
The lender will look at the co-borrower’s income, assets and credit history – not just yours – when assessing the application. While he or she may be doing you a huge favor by joining you on the loan, make sure the co-borrower knows the consequences. In the event you have trouble making your loan payments, the bank can go after the co-borrower, too.
When you’re choosing a realtor, ask them if they have experience working with first-time home buyers with your similar price range. This step is especially crucial for a single person. There are a lot fewer homes that are scaled and priced for a single’s budget, so you can expect to spend more time looking and negotiating.
Lastly, reach out to your family and friends. Find a few people you know you can trust as a sounding board for times when you are overwhelmed by the process. Making such momentous choices by yourself is one of the most difficult parts of buying a home as a single person.
Look Toward the Future when Home Buying
Historically, studies show it is not uncommon for an American adult to live alone at some point in their life. This typically occurs either at the beginning or end of their adult life, and due to the rise in divorce, the middle.
However, for most, studies show this is not desired in the long-term. With that said, as you search for homes, it’s important to consider certain situations that could directly impact your future.
Many singles move more suddenly than others due to unexpected life changes. This often turns the home into a primary residence that can later be turned into an investment. Instead, consider it as a place to live and a place that fits your lifestyle. Consider what would happen if you found a partner, or need to relocate for a job.
If you’re a single person but in a relationship, include them in the financial talks. This includes credit card debt, student loan debt or other issues that could affect getting a mortgage. Whether you decide to buy a home together or just live together, it’s wise to have a bigger savings account as if you were buying as a couple.
Home ownership is a big investment and a lifestyle change — so it’s crucial to make sure you’re financially prepared and have done your homework. It’s better to wait than to find yourself over-stretched after committing to the major purchase.
Finally, keep in mind additional costs of home ownership beyond the purchase price and mortgage costs. This is especially important when researching the location of your potential home. Be sure to ask for a full list of additional dues. These can include homeowner association fees and property taxes to utilities and lawn care.
Financially Responsible Home Buyer: Looks Good on You
The key for successful home-buying when single is becoming doubly responsible in all important facets. By really understanding your budget, income, stability of that income it is feasible.
Not to mention, as a single person, how fantastic is it that you are a homeowner? Being financially smart and responsible is the new hot. Sure, back in the day it was cool to go off the grid and live the high life of financial irresponsibility. But disposable life income crashed alongside the 2007 housing market.
Not saying this is something single people should seek in order to increase attractive levels. But, let’s be real. Daily tasks like pulling into a garage and mowing a lawn becomes way cooler when you tell people it is at your own home.