Buying a home as a single mother can be a daunting task. With record-high interest rates and complex approval guidelines, it can seem even more out of reach. Understanding the down payment grants, assistance programs, and types of home loans that can benefit single moms, can help you work towards the goal of home ownership.

What Do Lenders Look at When I Apply for a Mortgage? 

In 2022, the U.S. Census Bureau reported there were 10.9 million one-parent families, with almost 80% of those homes headed by the mother. However, in recent years, only 31% of single-mothers were homeowners. Learning what criteria lenders look at when approving a mortgage can help you decide if the time is right to apply for a mortgage to buy your own home. Lenders consider factors like your creditworthiness and income, including: 

• Credit score 
• Income and employment history 
• Debt-to-income ratio 
• Amount saved for a down payment 

Mainly, lenders want to see how likely you are to repay the loan. You can still apply for a mortgage if you have a low income or poor credit, but the lender will probably give you a higher interest rate or larger down payment if it approves you. There are also programs that provide down payment assistance, or specific loan programs for lower income buyers or homes in certain areas. 

Down Payment Assistance and Low-Cost mortgages for Single Moms 

According to a study by Freddie Mac, almost 60% of single-females that are head of their household said they don’t think they can afford to buy a house, and don’t know that they ever will be able to. For single mothers, lack of funds for a down payment and the high cost of housing are major factors in the fear that they shouldn’t try to buy a home. The good news is, there are many programs that can assist you in purchasing a home, even if you don’t have a lot of money saved. 

Down Payment Assistance & Grants 

If you want to buy a home, looking for Down Payment Assistance Programs and grants can help fund a down payment or closing costs. Money provided by these programs are usually in one of four categories. 

1. Grants or assistance that doesn’t need to be repaid. 
2. A loan for funds that doesn’t have to be repaid as long as you meet, and continue to meet, the requirements. 
3. Deferred loan with no interest or payment for a set amount of time. 
4. Low interest loan with interest rates lower than other loan programs. 

While most of the programs are not just or single parents, they are helpful for single mothers that need help with securing a down payment. 

The National Homebuyers Fund: This program provides up to 5% of the loan amount to help with down payment and closing costs. Single mothers who meet certain income and credit requirements may be eligible. The organization also has other financial assistance, and the ability to connect buyers with lenders. 

USDA Rural Development Homeownership Assistance: This program offers up to $10,000 in assistance for low-income borrowers who are purchasing a home in a rural area. You can check eligibility on the United States Department of Agriculture (USDA) website based on your income and property’s zip code. The USDA also has loans for homes in rural areas. 

State and local government programs: Many states and local governments offer down payment assistance programs, some specifically for single mothers. These programs may offer grants, forgivable loans, or low-interest loans to help with down payment and closing costs. 

There are also organizations and government programs that offer lower-cost housing or grants to lower the cost of a home. 

Habitat for Humanity

Habitat for Humanity builds affordable housing options for single mothers and low-income residents through its homeownership program. The organization sells the homes to qualified families at no profit, and with no interest charged on the mortgage.

HUD’s Good Neighbor Next Door Program

The U.S. Department of Housing of Urban Development (HUD) Good Neighbor Next Door program offers up to a 50% discount off the list price of a home in a designated revitalization area to residents who are law enforcement officers, firefighters, emergency medical technicians, or teachers, including single-mother in these occupations. 

Best Types of Home Loans for Single Moms

Navigating the benefits and eligibility requirements of the many home loan types available to you can be stressful. While there are mortgages specifically for single moms, there are many available that might benefit you. Understanding the different mortgages that might work best can make navigating the process much easier. 

FHA Loans

An FHA loan is a mortgage backed by the Federal Housing Administration (FHA), giving lenders more flexibility for loans to  first-time homebuyers with mid- to low income or less-than-perfect credit. The loans usually have lower down payment requirements and lower interest rates than other mortgages. The required down payment is usually 3.5% of the purchase price and you should have a credit score of 580 or higher.

USDA Loans

USDA loans are available for homes purchased in certain rural areas by low-to-moderate income buyers. The USDA doesn’t set a minimum credit score, but the lender will have their own qualifications. Most lenders look for a minimum credit score of 620. USDA loans can have a down payment as low as 0%. 

VA Loans

The Veterans Administration insures VA loans for past and present military who meet certain qualifications. Lenders can usually offer VA loans with no down payment required.  The minimum credit score is usually 580 and you will be required to submit documents showing your service history. 

Conventional Loan

Conventional loans aren’t insured by any organization or government like the FHA, USDA, and VA loans. Instead, private lenders or banks back conventional loans.This type of loan offers more flexibility and is usually best if you have some savings for a down payment and a good credit score.

Fixed-Rate vs. Adjustable-Rate

When you look at a loan, it will be a fixed-rate or adjustable-rate mortgage (ARM). A fixed-rate mortgage will have the same interest rate for the life of the loan. An ARM will have a fixed interest rate or a set period, and then will adjust in increments. For example, you might have a 3/1 ARM, which would have a set interest rate for the first 3-years, and then the rate adjusts every year after that based on the market. 

The benefit of a fixed-rate mortgage is that you will always know exactly what your monthly loan payment will be. However, if the interest rates drop over time, you would have to refinance your loan to get the lower rate, which can be time consuming and expensive. 

An ARM can be unpredictable, and you need to be prepared for your mortgage payments to go up when you start to see adjustments. If the market interest rates go down, your payments would decrease. The key is making sure your finances can handle any adjustments. 

Home Loans for Single Mothers FAQs

Still have questions about applying for a mortgage or home loan as a single mother? Here are some of the most commonly asked questions as well as our answers below.

Are there any special home loan programs for single moms?

A: There aren’t specific home loan programs just for single mothers, but many lenders have government-backed loan programs that are accessible to low- and moderate-income borrowers, including single mothers. These include FHA, VA, and USDA loans, if you meet the loan qualifications. 

Does the government offer assistance programs for single moms buying a house?

A. Like mortgages, there aren’t any federal programs designed solely for single moms. However, many states and local governments and charitable organizations have down payment and closing cost assistance. HUD also has programs for homes in up-and-coming areas if you work in certain professions like a teacher, police officer, firefighter or EMT and for public-housing residents. 

How much money do I need to have saved to apply for a mortgage?

There are many costs associated with a home loan. You should account for closing costs and the down payment. A down payment ranges from 0% for some government-backed loans to 20% of the purchase price for conventional loans. Closing costs can be as little as 3% and as much as 6% of the loan amount. If you are unsure if you have the funds, there are programs that can help you with home buying costs. 

Lenders are required to provide you with a loan estimate when you apply for a loan that outlines the specific costs for the specific loan you apply for. Before closing, they also give you a closing disclosure so you can verify the costs are what you expect. 

Can I claim child support as income when applying for a mortgage?

You can use child support payments as income when applying for many home loans. Lenders will have different criteria, but some will want to verify: 

1. How long you have been getting child support payments. 
2. Proof that you get the payments regularly, like bank statements or canceled checks. 
3. You will receive the payments for a set amount of time after the lender approves the loan. 

What factors should I look at when applying for a mortgage?

Getting estimates from several lenders will give you an idea of what loans are available and what the requirements are. Important things to look at are the loan products they offer, credit score requirements, and down payment and closing costs. 

What can I do to improve my credit as a single mom before I apply for a home loan?

A strong credit score can usually help you qualify for better interest rates and a lower down payment. If you are concerned about your score, there are things you can do to increase it before you apply for a home loan. 

• Check your credit report if you don’t know your current credit score. 
• Paying off debt can help increase your credit score. The credit bureaus look at your credit utilization ratio when calculating your score. 
• Pay your bills on time. Late and missed payments can have a negative impact on your credit rating. 
• Avoid opening new lines of credit or getting credit checks. When a company does a “hard” credit check, it can lower your credit score, even if the lender doesn’t approve you for the loan. 
• If you don’t have an extensive credit history, opening some small accounts, like a secured line of credit, can help you build payment history. 

It is definitely possible to get approved for a home loan if you are a single mother, even if you don’t have the best credit or a large savings account. The key is researching all of your options, and finding assistance programs, as needed. Every lender will also be able to give a better idea of their programs and requirements to help you choose the best loan.

A cash-out refinance is a common strategy used by homeowners to leverage their home equity for financial gain.

However, traditional cash-out refinances often require borrowers to wait a certain period of time before they can access their equity. This waiting period can be a barrier for those looking to quickly take advantage of their home equity.

Enter the “delayed financing” cash-out refinance, a relatively new financing option.

A delayed financing exception allows you to tap into your home equity immediately after purchasing a property with cash instead of waiting the 6-month seasoning period most lenders usually require.

Fannie Mae’s 2011 Delayed Financing Rule

In 2011, Fannie Mae’s delayed financing rule gave guidelines that allowed borrowers to get a cash-out refinance loan on a property they had purchased recently with cash.

Previously, borrowers were required to wait six months before taking cash out by refinancing, even if it was a cash purchase. Under the 2011 exception, borrowers could immediately get a cash-out refinance up to the purchase price of the property, as long as they met certain requirements, which we will discuss later.

Why Was the Rule Introduced and Who Benefitted?

The real estate market in 2011 was still recovering from the 2008-2009 housing crisis, presenting both challenges and opportunities for investors and homebuyers.

Lending standards had become much stricter, making it difficult for some borrowers to obtain financing for home purchases. There was also a high rate of foreclosures, leading to an influx of distressed properties on the market and creating opportunities for investors to purchase properties at discounted prices.

However, many investors who purchased properties with cash were facing the challenge of waiting six months before they could cash-out equity.

The delayed financing rule addressed this problem by allowing these borrowers to do a cash-out refinance after a cash purchase. Sometimes, the cash-out could be as much as the purchase price of the property.

By providing this financing option, the delayed financing rule allowed investors and homebuyers to quickly access their equity and reinvest it into other properties or businesses.

This helped to stimulate the housing market and promote economic growth by increasing investment activity.

Delayed Financing Exception Requirements

To be eligible for a delayed financing exception with a cash-out refinance loan, there are certain criteria lenders look for:

1. You purchased the property in full, with cash, within the past six months.
2. The source of the funds to purchase the property is documented.
3. You have title to the property at the time of the cash-out refinance.
4. There are no outstanding liens or judgements on the property.
5. The purchase was an arms-length transaction, meaning you had no previous connection with the seller.
6. The new loan amount cannot exceed the purchase price or the appraised value at the time of the cash-out refinance.

Each lender will also have its own standard eligibility and underwriting requirements for delayed financing cash-out mortgage.

Pros and Cons

Delayed financing in cash-out refinancing can be a useful financing option if you have recently purchased a property with cash and want to quickly access the equity. However, as with any financing option, there are pros and cons.

Pros:

1. Buyer advantage. You can be competitive in a seller’s market where cash is king. You can make an all-cash offer knowing you access the funds immediately after the transaction with delayed financing.
2. Quick access to funds:  You can quickly access equity by obtaining a cash-out refinance immediately after purchasing a property with cash, without the standard six-month waiting period.
3. Flexibility: You can use the cash-out for making repairs or renovations, investing in other properties, or paying off high-interest debt.

Cons:

1. Potential loss of equity. If the real estate market declines, there is a chance the property’s appraisal will come in lower than what you paid, meaning you won’t be able to cash out the entire amount you invested.
2. Cash reserves. You will temporarily have a large amount of cash tied up in the transaction, There is no guarantee that the lender will approve you for the delayed financing, and so there is some risk.
3. Leaving some equity in home. The maximum loan amount might be the purchase price, but you will probably need to leave some equity in the home to avoid Private Mortgage Insurance (PMI) and to account for a potential decrease in value.

Overall, delayed financing cash-out refinancing can be a useful tool for borrowers who need quick access to funds after a cash purchase, but it is important to weigh the pros and cons before deciding.

Loan Requirements

In a traditional cash-out refinance, you are replacing a current mortgage with a new, larger mortgage to account for the amount you cash-out.

With a delayed financing exception you are reimbursing yourself with the cash you just invested in the home.

For the refinance, there are minimum and maximum loan amounts and also loan to value ratios depending on the loan type.

Minimum and Maximum Loan Amounts

The minimum and maximum loan amounts for delayed financing will depend on the lender.

Usually, lenders limit the maximum loan amount to the price you paid for the property, or what it appraised for at the time of the cash-out refinance, whichever is less. So, if you purchase a property in cash for $200,000, but when you apply for delayed financing in two month’s time the appraised value is $175,000, that would likely be the maximum loan amount.

The minimum loan amount varies, but is usually around $50,000.

Maximum Loan-to-Value Ratio

Besides meeting the lender’s credit and income requirements, most lenders have a maximum Loan-to-Value (LTV) ratio they follow with delayed financing based on the type and use of the property and the loan program used.

The LTV requirements also vary based on whether the delayed financing is fixed or adjustable rate.

Below is an example of the maximum LTV for fixed rate cash-out refinance loans.

Bottom Line

Overall, delayed financing for a cash-out refinance loan can be useful if you need quick access to the funds used to buy the property. You can use the funds for a variety of things like remodeling the property, investing in more real estate, or paying off debt.

It isn’t without its downfalls though, and you have to account for things like declining appraisal values and meeting the lender’s qualifications.