Buying a home is one of the biggest investments you’ll make in your lifetime. While many people wait until they are married or in a relationship to purchase their first home, buying a house is possible when you’re single. Despite the challenges of financing a home purchase with one income, single homeowners hit record highs in 2020, representing 38.4% of owner-occupied housing.
If you’re thinking about buying your dream home while single, it’s essential to understand the process and recognize potential hurdles. Here are seven tips to help you prepare for homeownership as a single person.
1. Determine Your Budget
The first step to becoming a homeowner is knowing how much you can afford to pay for a property. Assess your income, existing savings accounts, recurring monthly payments, and debts to see how much money you can put aside for your purchase.
You can also use an online mortgage calculator to input these amounts to find the right loan size for your needs. Once you have this amount in mind, browse the local housing market options to find existing listings within your price range.
Remember to budget for an additional 3%-6% of the purchase price for your closing costs.
2. Build Strong Credit
One of the significant challenges single homebuyers face is qualifying for a mortgage loan. When a couple applies for a home loan, the mortgage lender considers both incomes, making it easier to qualify for favorable interest rates and loan terms. Dual incomes also represent more financial stability, posing less risk to the bank or financial institution.
Building your credit history and increasing your score improves your creditworthiness to lenders, helping you secure the loan you want at a competitive interest rate. A FICO score of 670 is the minimum requirement for many mortgage lenders. A score of 740 to 799 is very good.
To obtain a mortgage amount with the best available interest rates, strive for a FICO score of 800. A FICO score of 800 to 850 is exceptional, making you a minimum risk borrower. Straightforward ways to improve your credit score include:
- Paying off past due accounts (including credit card debt)
- Reporting errors in your credit report to one of the major credit bureaus (TransUnion, Equifax, and Experian)
- Maintaining a low credit utilization ratio (30% or lower)
- Avoiding late or missed bill payments
- Limit requests for new lines of credit around the time you plan to apply for a mortgage
3. Save for a Down Payment
More than 95% of U.S. homes are purchased through financing. However, to get approval for a mortgage loan, you’ll need to pay a percentage of the amount upfront; this is called the down payment.
Paying 10% to 20% of your home’s value lowers the risk you pose to lenders, improving your chances of approval and making your loan more affordable. However, saving 20% of the purchase price can be challenging for single individuals. You can set a monthly savings goal for yourself to begin building your down payment fund and look into first-time homebuyer programs for additional discounts, grants, or government subsidies.
4. Take Advantage of First-Time Home Buyer Programs
As a single person purchasing a home, it’s important to understand the credits and programs available to you that make the process more affordable. Shop around and explore the various options for a mortgage loan to get the best rate with a minimal down payment.
Therefore, you may qualify for an FHA loan with debt or a low credit score.
However, FHA loans are only available to owner-occupied primary residences, so you aren’t eligible if you purchase a home as an investment property.
You will also have to pay private mortgage insurance (PMI) for the loan duration if your loan-to-value ratio (LTV) is less than 90% when you close on the house. So the higher your downpayment, the lower your LTV.
U.S. Department of Agriculture (USDA) loans are available to rural buyers. The main issue with this type of loan is eligibility. USDA loans are designed for low-income buyers. There are also strict regulations surrounding the location of the property.
Metropolitan areas are excluded from the program, so your home must be located in the countryside to qualify. The USDA offers 0% down payments on their mortgages for eligible buyers.
The Department of Veterans Affairs (VA) backs loans for veterans, armed forces members, and their spouses. VA loan recipients can secure a home loan with no down payment.
5. Budget for Additional Expenses
Homeownership is costly beyond the initial expenses of closing costs and your monthly mortgage payments. Also, consider additional monthly bills like your utilities, HOA fees, yard maintenance, home warranty insurance, and internet costs.
Homeowners also pay property taxes either annually, bi-annually, or quarterly, depending on where you live. This expense is approximately 1.1% of your home’s value. So if your purchase price is $300,000, you can expect to pay roughly $3,300 per year in property taxes.
Before you buy, thinking about these costs ensures you have sufficient income to live comfortably while making payments on time. You don’t want to overextend yourself financially by purchasing a property at the very top end of your price range.
6. Hire a Real Estate Agent
Navigating the home buying process can be overwhelming for anyone, but when you’re purchasing a home by yourself, it’s a good idea to have some support. A real estate agent can help you narrow your search. They take details such as property location, amenities, and home features and find properties on the market that meet your criteria. This ensures you don’t waste time looking at homes that aren’t in your budget or are missing key features.
Real estate agents also have access to homes on the MLS (multiple listing service) before anyone else, so you won’t miss out on exciting properties that are newly listed on the market. Your agent also knows whether the price point for the home is reasonable and can offer advice on terms you should include in your offer, such as a home inspection.
7. Carry Out a Professional Home Inspection
It is a good idea for a single buyer to include a professional home inspection as a contingency in an offer on a property. A contingency is a mandatory requirement that must be met before a real estate deal can be closed. A professional inspection helps you identify defects or potential issues within the property.
An inspection is a vital aspect of the home evaluation process. It helps you determine a fair purchase price and draws attention to issues that may add to the cost of your new home. For example, if the home needs major plumbing, electrical, or HVAC repairs within five years of the purchase, this can add thousands of dollars to the price of the home.
Information gathered from a professional inspection is not only a powerful negotiating tool, but it may also protect you from significant long-term expenses or hidden costs. In competitive housing markets, buyers sometimes forego an inspection contingency to expedite purchasing. However, this is a major risk for a person with a single source of income.
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