When it came time to find a home, Veronica L. knew she wanted to give her daughter the type of home she grew up in with her mother.
“I was looking for an older home that had natural wood, at least three bedrooms, two and a half baths, a living room, dining room and a den, basement and backyard,” she says.
If you’re a single parent, you probably want to give your children the best possible environment to grow up in. If part of your plan for that includes getting a house for you and your kids, there are a few things you need to think about.
One of Veronica’s biggest obstacles when buying her home was that she wasn’t very familiar with the home buying process.
“I wish I would’ve known more about budgeting,” she says. “I wish I would have known more about the home buying process, what’s all involved. You’re going to need money to bring to the table.”
Aisha Taylor is a single mom and financial expert who runs Frugal N Phenomenal, a site dedicated to setting single mothers up for financial success. She said the first thing you should take into account is your savings.
“Have a fully funded emergency fund of 6 – 9 months as a single mom,” she explains. “I recommend more for single moms because if they lost their income, the entire household income would be gone and it’s hard to know how long it will take to find a new job.”
She also recommends taking a good look at how much you have for a down payment. Down payment size is one of the items that impacts how low your interest rate is. It can also affect whether or not you have to pay for mortgage insurance.
The monthly payment is definitely something to think about, but you also have to consider closing costs and reserves. Most loan programs require that you have reserves on hand. Reserves represent how many months you could continue to make your mortgage payment if for any reason you suddenly lost your income.
Taylor said one of the best ways to keep your spending down is to make sure you’re not spending too much on eating out, as well as just finding a way to track all your spending. If you’re conscious of your spending, you’re less likely to overspend on things you don’t need.
Finally, it’s important to have realistic expectations in terms of how much house you can afford. Taylor recommends buying a house that costs no more than two times your annual salary. It’s also important to make sure that the house payment doesn’t cause your debt-to-income ratio (DTI) to soar too high. DTI is the percentage of your income that goes to monthly debt payments for housing, credit cards, cars, etc.
Lending is all about quantifying risk. Mortgages are no different. One of the main ways lenders quantify whether you’re a good risk is by looking at your credit.
Veronica said when she was initially going through the home buying process, credit wasn’t on her radar.
“I just didn’t know so much about the importance of it and what abilities it would afford me,” she says. “I had to build it, but didn’t know how to build it properly.”
If you’re single, one issue is that the lender only has a single credit score to rely on. That’s fine if you have great credit, but if your monthly debt payments are maybe a little bit higher, you don’t have another person to balance that out.
Credit can be a particularly tricky issue if you’re just getting out of a relationship and everything you had was in joint credit accounts and loans. You need to start rebuilding that history in your name alone. You can begin to do this by getting a secured card in your name alone before moving on to regular credit cards. A secured card is like a regular credit card, but it’s backed by a deposit of your own funds. You might also consider getting an auto or personal loan before trying to apply for a mortgage in order to show a history.
It’s also important to make a smooth adjustment to having one income if you used to have two. If you find yourself putting more on your credit cards in order to make up for a budget shortfall, you’ll find that you end up using more of your available credit. If you carry a large credit card balance month to month, that can hurt your chances of being approved for a mortgage.
The good news is that your credit history is now all your own, which means you have a fresh start if you had joint accounts that your former spouse or partner wasn’t paying on.
If you have lots of debt, you should set up a strategy to begin to pay that down systematically. What strategy has worked for Veronica?
“Pay your expenses and put as much money as you can on a bill you can pay off quickly,” she advises. “Pay that off and then take that payment along with the extra you were putting toward it and put it on another bill.”
Of course, this strategy can be modified to fit your personal goals and situation, but it’s important to just get that debt paid down.
If you want some personalized advice on your credit score and report, check out QLCredit. The service will allow you to pull your credit for free and get recommendations on how to improve. The credit pull won’t affect your score.
If you receive child support payments from your child’s other parent, this may be used to supplement your qualifying income. The lender just needs to see documentation that these payments will continue for some time into the future.
On the other hand, if you’re making child support payments that will be ending soon due to a change in your custody arrangements or because your children are getting older, these payments can actually be excluded from your DTI. This can help you qualify for a higher loan amount.
House Hunt for the Future
When it comes time to shop for a house, it’s very important to think long-term.
“Quite often, we buy things, including homes, that fit our current situation,” Veronica explains. “We don’t look at what the future situation is going to be.”
Even someone with three kids may be in a different situation than someone else with the same number of children, depending on where they’re at in their lives. If your kids are all in high school, it doesn’t necessarily make sense to buy a four-bedroom house if they’ll be moving away to go to college or start their career in a few years. On the other hand, if you have young kids, they could probably use room to grow.
Beyond basic space considerations, Taylor says you should consider other factors, too. For instance, take a look at the school district in order to make sure it’s going to work well for your children. How fast is the response of emergency services in the area? And if you’re moving into a fixer-upper, do you have the money and time for the work that’s going to be necessary to make your home everything you want it to be?
You should also take a close look at your overall situation and determine whether buying makes sense for you.
Veronica decided buying made sense for her, and there were a lot more benefits than just a roof.
“(You have) the security of knowing this is your home and you’re not going to have to move unless you choose to,” she says. “Having the flexibility to do anything in your own home, decorating-wise, or change it, being able to paint the walls purple if you want to, and there’s no consequences for that.”
Veronica also loves the investment potential that’s gained when she builds equity, and she benefits from the home mortgage interest deduction she can take on her taxes.
If you think you’re ready to get started with purchasing a home, check out customized mortgage solutions online through Rocket MortgageSM by Quicken Loans or call (888) 728-4702.
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