Yes, You Can — Your Pathway to Homeownership
If you've been renting, it's likely you've been dreaming of buying your own home. But dreams of a yard for your kids to play in and the ability to paint walls the color you want sometimes slip away with the fear of taking steps to buy a home. Although being a single mother might feel like an obstacle to homeownership, it doesn't have to be. If you want to buy a home, you can. You just need the right pathway to homeownership.
Below, we outline the broad steps you need to take to buy a home, including tips and resources to guide you. Everyone's pathway to homeownership is a little different. So use what applies to help you achieve your dream of buying a home.
Step 1: Evaluate Your Financial Situation and Your Credit
Before you search for the perfect home, you want to know how much you can afford based on your income and credit rating. It's best to start with your bank or credit union because you already have an established relationship.
If you are behind on any payments or you have any collection accounts on your credit, you should do what you can to take care of these items. The law entitles you to get a free copy of your credit report each year. If you know you have some credit issues, you should review your reports and take action before you talk with your bank. Visit annualcreditreport.com for a copy of your report from each of the three credit reporting companies.
Step 2: Plan for the Upfront Costs of Buying a Home
Buying a home has a lot of hidden costs that people do not consider. They can sometimes scare away single mothers from taking the plunge into homeownership because they do not think they can afford it. We will cover special programs, loans, and resources to help you cover some or all of these costs. But first, you need to know the costs:
Down payment: Most lenders require a minimum of five percent down to buy a home, but 20 percent is the standard amount.
Earnest money deposit: Once you find a home you like, you need to show the buyer you are serious by offering earnest money. This deposit, which is typically one to five percent of the purchase price, is credited to your down payment.
Reserves: Lenders want you to have some cash reserves in savings to cover your first two or three mortgage payments.
Property taxes: It's standard to pay two to three months of property taxes at closing.
Fees: Some mortgage lenders have origination fees for loans, especially if your credit is good and you are getting a low interest rate.
Mortgage Insurance: If you put less than 20 percent down, you must purchase mortgage insurance to protect the lender if you do not pay your loan.
Appraisal: Homebuyers need to have an appraisal to get a loan. You can expect to pay $400 to $600 upfront for an appraisal.
Title fees: You need to buy title insurance and pay title fees for the title company to transfer ownership to you. It protects you and them if there are issues from the previous owner, such as a tax lien.
Home inspection: You want you and your kids to live in a safe space, so you should have a house inspection before your final closing.
Closing costs: These include transfer taxes and other fees to put a home in your name. They vary greatly from state to state.
Step 3: Research Options to Help You Avoid or Reduce the Costs of Buying a Home
Single mothers who make a meager income sometimes feel hopeless when it comes to saving for all the costs that come with being a homeowner. Saving $1,000 seems as unreachable as saving $1,000,000 when you are trying to put food on the table, pay rent, and provide for basic needs for you and your kids. Fortunately, many programs exist to offer some level of financial help for homebuyers. Research the following options for economic assistance:
Your Local Housing Authority
Many states have programs for homebuyers, especially those with low incomes. You might be able to find loans that require low down payments or grants to help you pay for your down payment and closing costs. You can look up your state's housing authority information here. Then contact them to learn about programs you might qualify for on your pathway to homeownership.
Federal Housing Administration (FHA) Loans
The FHA has the most popular mortgage loan program for first-time homebuyers. If you qualify for an FHA loan, you can pay as little as 3.5 percent down with no income requirements. FHA loans are also a good option for those who have less than perfect credit. Not only do you have a better chance of qualifying, but they do not charge you higher interest for a lower credit score.
Homeownership for Public Housing Residents
If you receive a Housing Choice Voucher (HCV) that allows you to live in public housing under Section 8 guidelines, you might be eligible for a Homeownership Voucher. The HCV Homeownership Program allows families to use their vouchers to buy a house and receive monthly assistance for expenses. This program is not available in every state, so you need to contact your local housing authority.
Habitat for Humanity Houses
Habitat for Humanity builds homes for families in need and is well-known for its support of single mothers. You can apply to be a homeowner with them. As part of your pathway to homeownership, they evaluate:
The need of applicant families
Their willingness to put in the work to help build a house
Their ability to pay back an interest-free home loan
Individual Development Account (IDA)
If you have a limited income but you can afford to save a little, an individual development account is a good choice to help you reach savings goals for owning a home. IDAs are special savings accounts. Organizations match your savings, sometimes doubling or tripling your savings. Additionally, the federal government will add up to $2,000 in funding to a local IDA program.
Pathway to Homeownership: Putting It All Together
Regardless of your income and credit situation, you have options if you want to own a home. Evaluate your situation and what you can afford. Then find the financial resources that can help you reach your goal. Soon, you'll be able to call yourself a homeowner!