Did you know, even a single person could buy a home? There are no rules that you must be married or have a co-borrower. In fact, the mortgage rules state lenders can’t discriminate based on age, sex, or marital status, among many others. So what is so hard about buying a home by yourself?
The fact is you put yourself in a unique situation. You don’t have another income or credit score to fall back on. This means you must qualify for the loan all on your own. This could be a difficult task. It’s not impossible, though. We discuss what you need to do to get qualified.
Perfect Your Credit as a Single Person
When two people apply for a mortgage together, the lender may use the lowest middle score between the two of you. This might sound like it works in your favor if you are single. You don’t have to worry about someone having a lower score than you. However, lenders look at the big picture. Even if your co-borrower has the lower score, he may have higher income or a lower debt ratio. It all balances out. If you are the only borrower, everything relies on you.
Before you apply for a mortgage, look at your credit. You can get a free copy of your credit report from each credit bureau once per year. Go over these reports. See if the information reporting is accurate. Then, go over the account histories. Are you current on your payments? Do you have any collections? Are you over-extended on any of your credit? These are things you can fix now.
If you fix the credit problems before you apply for a mortgage, you increase your chance of approval. Leaving it to chance could leave you without a mortgage.
Stabilize your Employment
The longstanding rule is you should be at your job for at least 2 years before applying for a mortgage. Today lenders might be a little more lenient. But, if you are the only one on the loan, you want to maximize your chances of approval. Don’t apply for a mortgage until you are at the same job for 2 years. If you do change jobs, make sure you do so for good reason. A few good ones include:
- You went to school to take a better position and you can prove it
- You took a job with higher pay or the potential for advancement
- You took a job at a more stable company
You can easily prove any of these situations to a lender. This way if you did recently change jobs, you won’t look like a high-risk borrower.
Minimize Your Debts
Your debt ratio could be the largest barrier when buying a home as a single person. You don’t have another person’s income to offset your debts. Of course, this could be a good thing. If you had a partner with a lot of debt, it could increase your total debt ratio. It’s like a double-edged sword.
When you apply on your own, though, you are in control. Before you shop for a home, go over your debts. How many credit cards and loans do you have? How do the payments compare to your income? On a conventional loan, you need debt ratios that don’t exceed 28/36. This means your total debt including all loans and credit card payments can’t exceed 36%. That’s a tall order to fill. Get rid of your debts before applying for a mortgage so you can minimize your ratio.
Save Money for a Down Payment
The money you put down on a home helps determine your risk level. The more you borrow, the riskier you are to a lender. This doesn’t mean you need 20% down or you won’t get a mortgage, though. There are options. But, the more money you put down, the better your chances of approval.
Start saving money long before you want to purchase a home. This way when you are ready, you have the money. Strive for a 20% down payment, but don’t avoid applying for a loan if you don’t have that much. At the very least, you’ll need 3.5% for an FHA loan. Since FHA loans have lenient guidelines, you may have a better chance at securing this type of loan.
Show Long-Term Stability
Lenders want to see that you can afford your loan moving forward. This is why they like to see job stability and consistent income. This helps them feel confident you will be able to afford the loan moving forward. Since you are single, you need to show long term stability. You don’t have another income to fall back on or a great credit history to back you up. Everything is on your shoulders. If you can show a lender you have a proven track history, you may have a better chance at approval.
There are no rules stating you can’t purchase a home as a single person. However, lenders may act more cautious with your situation. They just want to avoid the risk of default for themselves as well as you. If your city or county offers Housing Counseling or mortgage help, take it. Let a counselor guide you to the right program. This way you know without a doubt that you are not getting in over your head.
In many cases, you are at an advantage buying a home on your own. You don’t have to worry about anyone else’s debts, credit score, or low income dragging you down. You are in control of what you receive. The earlier you start the process, the better your chances of approval. Stabilize your income and employment and save as much as you can. If you know you had credit problems, try to fix them before re you apply for a loan. This way you increase your chances of approval. You also increase your chances of securing a great interest rate. This helps to make your loan the most affordable.