Being a single parent comes with a heavy responsibility to provide for your children, while facing the daily struggles of parenting alone. One of the biggest responsibilities a single parent bears is that of putting a roof over their children’s heads.
As a single parent, you must first determine if renting or home ownership is the best option for you. Income sources, assets and debts, job security, and cost of maintenance and repairs are all factors to consider. If you have made the decision to step into home ownership, you may be wondering what the steps to owning a home as a single parent look like.
If you’re ready to put down roots and purchase a home for you and your children, here’s what you need to know about securing a mortgage.
Be good with a budget. Every parent knows the struggle of budgeting. When your income is the sole source of income for your household, managing bills and financial responsibilities can be a daily struggle. Start by building a budget. Determine how much you pay out each month for rent, utilities, phone/TV/Internet, groceries, healthcare, etc. Weigh that against your monthly income (be sure to include any child support or alimony you may receive). Are you currently living within your means and able to save the extra? If not, it’s time to make cuts. From eating out and entertainment to cable and Internet, find areas where you can trim the fat and start putting money away in savings. As a rule of thumb, aim to have a minimum of six months expenses saved in an emergency fund. Pay off or pay down debts and start saving for your down payment.
Tip: The Prism app is a great tool to help you stay on top of your money and manage all your bills and payments. Prism allows you to see all your accounts in one place and sends reminders when a bill is due.
Reduce your Debt-to-Income Ratio — You’ll only be able to borrow a certain percentage of your income and lenders will look at your debt-to-income ratio to determine if you qualify. This number is your recurring debt payments (housing, student loans, credit cards, car loans, child support, alimony, etc.) Pay off as much debt as you can before you apply for a mortgage.
Know your credit score. If you’re just getting out of a relationship, your credit score may be tied to your former spouse. Don’t put off taking steps to rebuild your credit in your name. Open a secured credit card to begin building your own credit history. Pay down credit cards to keep your credit utilization below 30 percent. (If you have a $1,000 credit limit, carry no more than $300 on your card at a time, if possible.) Not only will this improve your credit score, it also demonstrates to lenders that you’re able to live below your income level.
Save for a down payment. If you haven’t already started putting money away for a down payment, start now. You won’t necessarily need to put down the traditional 20 percent, but how much of a down payment you’ll need to make depends on the type of loan. Of course, the more you can put down, the lower your interest rate may be. That said, as a single parent, it may benefit you to put less down, and hold the excess in a special fund for home maintenance and repairs. Even if you’ll only need to put three to five percent down, on a $200,000 home, you’re still looking at needing anywhere from $6,000 to $40,000 at closing. Don’t forget to budget for closing costs (your agent and lender can help you determine how much those will be).
Get prequalified*. Once you’ve decided it’s time to seriously start house hunting, contact PrimeLending to get prequalified. This process is quick and simple and gives you an idea how much money the bank will lend you toward a home mortgage. (Most experts recommend finding a home that costs no more than twice your annual income.) While it is only an estimate, your pre-qualification number will help guide you on your home search. Getting prequalified for a home mortgage also shows your real estate agent and home sellers that you are a serious buyer looking to find a home for your family.
It may take some time to prepare yourself and your finances to purchase a home, but being a single parent doesn’t disqualify you from securing a home mortgage. Are you ready to purchase a home for your family? Contact PrimeLending today to speak with a home loan expert near you.
*A pre-qualification is not an approval of credit, and does not signify that underwriting requirements have been met.