Single moms can sometimes have it rough trying to raise their children by themselves and pay the bills.
Buying a house on top of all of that seems almost unachievable. But there are loans available and lots of assistance to make the dream of home ownership in reach for single mothers.
“There are programs out there to get more people in homes who don’t have a lot of savings. Homeownership is the ultimate goal of many of these loans and programs,” says Mark Gundersen, senior loan officer at Shelter Mortgage Company in Saint Charles, Ill. “It can be tough to support a family on one income. But if a single mom has decent credit, they could qualify for a mortgage.”
Single Moms have Harder Time Qualifying after Housing Downturn
In 2013, the National Association of Realtors Profile of Home Buyers and Sellers survey showed that the overall market share of single buyers declined from 32 percent in 2010 to 25 percent in both 2012 and 2013.
“Single home buyers have been suppressed for the past three years by restrictive mortgage lending standards, which favor dual-income households who are more likely to have higher credit scores,” says Lawrence Yun, NAR chief economist, in an NAR press release about the survey.
The statistics do show that single moms have a harder battle to get a loan. But, there is hope. A good place to start is to talk with a local housing authority. They can tell you what specific homeownership programs, grants and loans are available for your situation in your city or state.
Gundersen says that Illinois rolled out a new program in April called Welcome Home Illinois that is perfect for single mothers. More than $19 million of home loans have been given out so far in the program.
Those who qualify can get $7,500 in down payment assistance plus a below-market interest rate. It is run through the Illinois Housing Development Authority. Participants must have a 640 credit score, be a first-time homebuyer and be able to put down 1 percent of the purchase price or $1,000, whichever is greater.
“There are income and purchase price limitations depending on which county you are going to buy the house in,” he says. “But no one is getting near the purchase price limitations – which is $378,461 in Cook County (Chicago area).”
The maximum gross income of $90,960 for a household of one or two people is also tough to go over if it is a one-income family, he adds. The $7,500 is a forgivable loan, meaning that if you move or refinance in less than 5 years from your closing, you have to pay that money back on a prorated basis.
Best Mortgages for Single Moms
No matter where you live, there are several mortgages to look into for single moms.
Here are some options to investigate for your situation with your lender, according to Gundersen:
Your loan will have a low interest rate, and you only need 3.5 percent down. That down payment can come from a gift. “That’s the lowest down payment out there except for the VA loan,” Gundersen says. Also, your credit score doesn’t have to be so great either. Depending on the lender, a minimum of 600 is being accepted in most areas and through most lending institutions. Some do take 580.
One of the down sides of an FHA loan is the mortgage insurance premium. It’s almost double what people pay with traditional loans called private mortgage insurance when the down payment is less than 20 percent of the loan.
“You will pay that mortgage insurance till the end of the loan even if you paid off 50 percent of the principal. It’s always going to be there until you refinance or sell the house,” Gundersen says.
Veterans Administration (VA) Loan
If the single mom is eligible to get a VA loan through her own military service or as a widow or other relationship, it could be the best loan out there for her.
“You are getting an unbelievable deal with this loan. It is a well-deserved loan though,” Gundersen says. “You have no mortgage insurance.”
This loan is available to military veterans and their families with no down payment, and the government backs 100 percent of the financing. There is no mortgage insurance to worry about either.
United States Department of Agriculture offers a variety of loans to help low- to moderate-income people buy homes in rural areas. But “rural” can be a misnomer because many of the programs are offered in areas surrounding metropolitan cities. Many of these USDA loans have very low interest rates and no down payment. You get 100 percent financing, and the mortgage insurance premium is lower than that of FHA. USDA loans do have maximum levels of income, but most single moms will be well below income limits.
Gundersen says that you may need 5 percent down payment of your own money for a conventional loan. But conventional mortgage products like HomeReadyTM only require 3%, and even allow you to use renter or boarder income to help you get approved.
You will need a pretty good credit score and credit history, but some lenders are lowering their credit score minimum to get more buyers these days. If you don’t pay 20 percent down, you will pay private mortgage insurance up to when you reach that 20 percent in the principal. You can choose from 10, 15, 20, 30 and even longer fixed years of paying the loan’s principal and interest off.
Check Your Home Buying Eligibility
There are tons of programs that help single moms get approved to become a homeowner instead of a renter.
Get a free eligibility check and get on your way to giving the gift of homeownership to yourself and your kids.