Home Loans for a Single Mother

May 14, 2021 | 8 Minute read

Home Loans for a Single Mother: Financing Options

If you’re a single mom, owning a home might seem like a far-fetched dream. How does one find the time and money to buy a house and juggle daily tasks, from earning a living, to child care, to household chores?

Fortunately, you can find financing options out there if you know where to look. One such solution is a home loan for single mother households. Either private lenders or government agencies offer these loans.

Single Moms & Homeownership

It’s tough for single moms to become homeowners.

For one, most house prices are simply out of reach for the limited income of a single person. Statistics show that single female buyers (the category which includes single moms) have spent an average of $189,000 on buying homes. This puts them squarely on the lower end of the housing market.

The problem, though, is that in this sector of the market, competition is the fiercest. Sellers get multiple offers, further driving up home prices. The result is that buying a home is more out of reach than ever for single moms. However, you should still have hope. According to the National Association of Realtors, single female homeowners have comprised a steady 18% of the total market since 2010.

Getting a home mortgage certainly is possible, as long as the single mom has an impressive credit score. However, it’s still a challenge for the vast majority with limited income to qualify for a mortgage to buy a higher-priced home.

Luckily, there are alternative housing loans for single mothers you can consider. Most of these options have low down payments and more relaxed credit history requirements that can help you qualify.

We cover some of these options in the next section.

Where to Secure a Home Loan for a Single Mother

  • FHA

If you’re a single mom looking for a home loan, the first place you should check is with the Federal Housing Administration (FHA). They offer some of the most affordable loans for single moms.

For one, the FHA only requires borrowers to make a 3.5% down payment – a far cry from the 20% of most conventional loans if you don’t want to pay mortgage insurance. What’s more, you can use a financial gift from someone else to pay for the entire down payment with no restrictions.

Another advantage with an FHA loan is that they have fewer strict requirements. You only need a credit score of around 620 to get accepted. In some cases, your credit score can even dip as low as 580.

So, what’s the drawback? Well, you need to pay a mandatory mortgage insurance premium (MIP) with FHA loans. These tend to be more expensive than other loan types, up to two times what private lenders might charge. The MIP, unlike with conventional loans, also stays throughout the life of your loan, regardless of how much of the principal you pay off.

Nevertheless, the mortgage premium is often an acceptable trade-off for homeownership, making FHA one of the best low-income home loans for single mothers.

  • USDA Loan

The United States Department of Agriculture (USDA) also offers grants for single moms to buy a house in rural areas. If you want to buy a home in these locations, this is a fantastic single mother loan.

USDA loans have low interest rates and don’t require a down payment, making homeownership much more affordable. USDA loans require you to pay mortgage insurance premiums, but at much lower rates than an FHA loan.

  • VA Loan

The VA loan is a mortgage exclusively for veterans or active military personnel and their family. If you qualify for it (either you’re a veteran yourself or a widow of a veteran), it’s one of the better loans for single moms with no income or very limited earning capacity.

The requirements are even more relaxed than with the FHA loan. You don’t need to make a down payment, and you won’t see any mortgage insurance premiums. The loan is also 100% backed by the federal government, so there’s reduced risk for you as well.

The drawback to VA loans, of course, is that they’re restricted only to veterans.

  • Conventional Loan

It’s much more challenging to be approved for conventional loans. This is due to the fact they have stricter requirements than other loan types. For example, you need an excellent credit history (620 or above) and proof of income.

These loans also have higher down payment requirements – as much as 20%. Depending on the lender, you can settle on less than that, but you’ll need to pay for mortgage insurance. The good news is that the premiums are cheaper compared to that of FHA loans.

Suppose you don’t qualify for any of the government loans for single mother households listed above. In that case, conventional loans will be your only option.

However, conventional loans aren’t all that bad. They could be potentially cheaper in the long run because you pay fewer mortgage premiums than an FHA loan; you can even have it waived. They’re also much more flexible in terms of what house you can buy and your loan timeframe.

  • Other Assistance Options

Single moms have further help in the form of home buying assistance programs, making it easier to pay for your mortgage.

First-time house buyers can receive mortgage credits from the IRS. These can help you allocate more funds to your loan repayments by lowering your yearly taxes.

There are also profession-based assistance programs that can help homebuyers in certain professions, such as medical front-liners and teachers. The Good Neighbor Next Door program, for example, can offer up to a 50% discount on the house’s price.

Single Mother Down Payment Assistance

When securing mortgages for single moms, down payments are typically what stop the home buying process. Unless you qualify for a VA or USDA loan, you’ll still need to provide upfront cash for the property. This may not be feasible for most single moms.

Fortunately, most states have down payment assistance programs that can cover part of the down payment on your loan. You can check with your local housing authority if you can apply to any in your area.

Here are some examples of these programs:

MyHome Assistance Program (California)

You can use this junior loan to pay down payment and/or closing fees. The total amount is 3.5% of either the home’s appraised or purchase price, whichever is lower, up to a maximum of $11,000.

GSFA Platinum Program

Created by the Golden State Finance Authority (GSFA) of California, this program provides homebuyers in the low-to-moderate income bracket down payment assistance as well as closing cost help. 

Emeryville First Time Homebuyer Loan Program

This program provides down payment assistance to households, including those of single mms, that are at or below the moderate income level. 

Down Payment Assistance Program (Brentwood, California)

Brentwood, CA, offers a deferred-payment loan for house purchases worth $600,000 or less, with a maximum loan amount of $10,000.

Single Mother’s Home Loan Considerations

The key to preparing for a loan application is knowing what lenders look for in an applicant. Remember, their goal is to determine whether or not you can pay them back in the future. Here are their primary considerations:

  • Credit Score

Your credit score is the first thing lenders consider. It gives them a good picture of your financial health and, more importantly, responsibility. A bad credit history means you frequently miss payments or have faced bankruptcy or foreclosure in the past, making you a risky option.

Unfortunately, there’s very little you can do to remedy a bad history immediately. Improving your credit score takes time and discipline.

  • Debt-to-Income Ratio

After the 2008 housing crisis, lenders started to add debt-to-income (DTI) ratio as part of their evaluation process. DTI tells you how much debt you have in relation to how much you earn. A high DTI means you’re carrying too much debt, increasing the risk that you’ll default in the future.

  • Proof of Income

Lenders often do background checks on your assets, bank statements, and other financial documents to see whether you can support your mortgage payments. The good news is that if you get child support as a single mom, this counts as part of your income. With the added income, you may find it easier for you to get approval.

  • Down Payment

On average, most conventional loans require a down payment of at least 20%. The larger the down payment, the greater the chance you’ll get your mortgage approved. This is an excellent strategy to take if you have a poor credit history, a high DTI, or both.

Discover How Reali Can Help

Financing a home as a single mother is tough. You may feel like the odds are stacked against you in your home-buying journey. However, with grit and a little bit of research, you can find the financing solution that best fits your needs.

Need help? Our expert agents at Reali are ready to answer your questions and give you the best course of action based on your situation. Contact us today to learn more about securing a home loan.

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