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.
- Grants or assistance that doesn’t need to be repaid.
- A loan for funds that doesn’t have to be repaid as long as you meet, and continue to meet, the requirements.
- Deferred loan with no interest or payment for a set amount of time.
- 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.
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 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%.
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 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:
- How long you have been getting child support payments.
- Proof that you get the payments regularly, like bank statements or canceled checks.
- 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.