The struggles of getting a home loan as a single parent
Every parent wants to provide security for his or her children and owning your own home is an important part of that. Uncooperative landlords are no longer a problem if you are in your own property, and it can also mean living in a better neighborhood than renting can provide. House purchase is also a long-term investment that can help build financial security for the future. Single-parent households are becoming more and more common. In 2008, as many as 30% of households with children were headed by a single parent. Single parents may have fewer resources to draw upon when raising a family, but that should not discourage them from pursuing the dream of owning a home.
Single parents with incomes above the poverty line sometimes have trouble making ends meet. Fortunately, there are programs designed specifically to help single-parent households achieve the dream of home ownership.
In such a circumstance the first step a single parent looking to qualify for a mortgage should take is to order copies of their credit reports from all three of the major reporting agencies. Understanding your credit score, and how it affects your chances of getting a good rate on a mortgage loan is important. In general, it is necessary to have a credit score of 620 or better, and clean credit (no bad debt or charge-offs listed) for at least one year, to qualify for a traditional mortgage loan. Employment is another obvious necessity; lenders prefer that you have been employed for at least two years. They also like to see proof via a job history. This should include steady periods of work with at least two employers.
One important information resource is your local Housing Authority, a state institution that can help you learn about home loans and will direct you to programs intended to help low-income buyers (including single parents), achieve their goal of home ownership. Before seeking out a lender, however, there are some steps single parents can take to improve their odds of not only getting a mortgage loan, but also of obtaining a reasonable interest rate.
The Federal Housing Administration (FHA) has fewer requirements and offers lower rates to low-income borrowers than do traditional lenders, making it easier for single parents to qualify for a loan. An FHA loan requires a 3.5% down payment on the home, making it possible to qualify for a loan with less cash on hand than with a traditional lender, that would require a down payment of at least 5%. The FHA will even count part time employment when qualifying a borrower for a loan.
Other programs that are worth looking into include Housing and Urban Development (HUD), which provides loan guarantees for borrowers who might not be able to qualify for a mortgage loan otherwise; they may offer a voucher program in your state. The Habitat for Humanity program may be another source of low-cost housing for single-parent families. Most programs require some “sweat equity”, and purchasers are required to stay in the home for a set length of time before selling, but help is then available for securing a mortgage.
Whether you purchase a newly-constructed home, an older home, or a “fixer upper” needing some remodeling, the pride of home ownership, as well as the financial security homeownership represents, is definitely worth pursuing.