As a single mother, you’re the sole person responsible for the financial decisions and future of your family.
Unfortunately, that can add even more pressure to your everyday life, especially when it comes time to consider purchasing a home.
Luckily, there is hope, in the form of home loan programs that offer lower down payment requirements and assistance affording a new home. Start taking steps now to turn your dream of homeownership into reality.
Personal Loans: Range from $1000 to $50,000
How To Apply For Home Loans For Single Moms
As a single mother, you know the struggle of maintaining your household budget on one income. At one time you probably put more on your credit card then you would’ve liked, and you’ve likely experienced a month where you spent more than you should have.
Mortgage lenders will look at your credit and recent financial activity to verify that you will be able to repay your loan. Primarily, they’ll want to see that your debt-to-income ratio, or the total amount you owe all lenders compared to what you make each month, falls into a reasonable balance of ideally around 40%.
What this means is that if you’re carrying balances on credit cards or other loans with a single income, mortgage lenders may be concerned that the additional debt you take on will make it less likely that you’ll be able to pay them back on time and in full.
Preparing For A Down Payment As A Single Mom
When most people are shopping for a home, they set a reasonable budget based on home prices. But what they often forget to consider is that most conventional mortgages require down payments between 10% and 20%. A $250,000 house seems affordable compared to million-dollar estates nearby, but you still need to come up with $25,000 to $50,000 just to secure your home loan.
For single mothers, having that much saved aside from education and future costs for children may be impossible. You may want to look at special loan programs offered at a state or local level that are designed to help people with limited incomes access the money needed to secure a new home.
The 3 Best Home Loans For Single Moms
When looking for mortgages for single mothers, the first thing you need to do is figure out what types of assistance you qualify for. Your work, your history, and even your location may be a pathway to a more affordable future for your family.
With these particular loan programs, you’ll apply at a bank or local lender that offers them, not directly through the government agency that backs them. Instead, those agencies will be your lender’s insurance that their losses can be recouped through the government should you fail to pay your loan.
1. FHA Loans
Federal Housing Administration (FHA) loans are ideal home loans for single moms because they were designed to help anyone move towards homeownership. Over 1,200,00 FHA loans were issued in 2017, and for a good reason – your down payment could be as low as 3.5%. On that $250,000 home, you would only need $8,750 to get through the door.
Family or friends can gift FHA loan down payments up to the full amount. Your gifter will need to write a letter stating the purpose of this amount and the fact that it is not a loan.
The reason that FHA loans are offered with less strident entry criteria is that the FHA insures them; therefore, the lender is less concerned about your risk of default. You will technically pay for this insurance, but it will be rolled into your total loan.
2. VA Loans
VA loans are a program of the U.S. Department of Veteran Affairs and are ideal home loans for single moms who are veterans, servicemembers, or surviving spouses of an eligible servicemember. As with FHA loans, VA loans are backed by a government agency which allows veterans to qualify for homeownership with minimal cost or risk to lenders.
VA loans require no down payment, and you won’t be responsible for any insurance premiums. The VA will only guarantee loans up to specific amounts based on region – the limit for most areas is $424,100, which goes up to over $700,000 in some areas of the country.
3. USDA Loans
U.S. Department of Agriculture (USDA) loans are perfect home loans for single moms that live outside of urban areas. While the USDA defines qualifying regions as rural, you’ll find that many are close to cities and in desirable locales.
There are no down payment requirements for USDA loans, but you will need to use the home as your primary residence and pay for mortgage insurance. However, the premium for these types of loans is typically around 0.35%, so you’ll still save more than if you put down a sizeable down payment.
Home Loans For Single Moms With Bad Credit
Coming up with the funds for a down payment can be hard enough when you have good credit, but when your credit is weak you’ll often find that you’re asked to put up even more money.
However, many of the options already discussed are also great home loans for single moms with bad credit. FHA loans, in particular, open the door to homeownership for borrowers with bad credit. To qualify for the lowest down payment of 3.5%, you’ll need a credit score of at least 580 – a score many conventional lenders won’t even lend to. And with an FHA loan, you can qualify for a 10% down payment with a credit score of just 500. FHA loans also allow borrowers to be eligible with higher debt-to-income ratios than conventional lenders.
Need help with Credit Repair?
These companies can help you build a strong credit
VA loans technically have no minimum credit score requirement, and lenders are advised to look at other documentation like rent and utility payments over reported credit history.
USDA loans, on the other hand, tend to require credit scores above 640, although the ultimate decision typically remains up to the lender.
If you are serious about buying a new home, these home loans for single moms will help you get through the front door. In the meantime, make sure to save anywhere you can to put more towards a down payment, and start improving your credit score, so you qualify for the best rates and terms on your home loan.