There are a myriad of reasons you may be buying a home with a single income. Maybe you are single and looking to make a move from apartment living to home ownership. Or, you may be a family with young children, one parent staying at home while the other parent is the sole breadwinner. Whatever the reason, just because you are a single income household doesn't mean that homeownership is out of reach for you.
Although having sufficient income is an important aspect of buying a home, there are additional things to consider aside from just making "enough money" when buying a home—single income household or not. The encouraging news is there are many homeowners out there that are single income individuals or families, and you could be one of them.
The first thing to consider when it comes to buying a new home are the four C's of lending. These apply to all of us, no matter what kind of buyer we are.
Credit: This stands for your current credit history, including your credit score. Lenders will check this to verify that you pay your bills and other debts on time. It is important that you have built and maintained a strong credit history for instances just like this.
Collateral: This is the value of the home you intend to purchase and other possessions you may have that you are pledging as security against the loan. When buying a home, the actual home you are purchasing normally serves as the collateral.
Capacity: This stands for your current and future ability to pay back a home loan. Lenders will look at your income, employment history, savings accounts, monthly debt payments (like credit cards and car loans), and any other financial obligations you may have. In doing this, they will make sure you have the means available to take on a mortgage loan.
Capital: This represents the savings you have on hand plus other investments, properties, and assets that are accessible to generate the needed funds to complete your purchase. It is important to remember when buying home there are funds needed for both a down payment (“skin in the game”) and closing costs (fees paid for the benefit of using someone else’s money). Additionally, having capital reserves shows lenders you can manage your money and have funds, on top of your income, to pay off debt.
As word of caution, this is also something you should do on your own and without the “help” of a friend or someone else. Now, if "someone else" is a parent and they've agreed to co-sign your loan, that is one thing. But what we really mean is deciding to buy a house with a friend or someone you're just dating, rather than a spouse, can be risky. There are many questions that arise in a scenario like this, such as...
- Who takes title to the property?
- How do you take title to the property?
- What about survivorship rights?
- What if the friendship or relationship goes south?
- What if one of you gets married?
While everything we've mentioned gives you more insight on purchasing a home on your own, consulting with a qualified Realtor® is probably the most important thing to consider. They can help you understand your debt-to-income ratio, talk you through major determining factors that go into qualifying for a loan, explain what all of those scenarios above mean (like what survivorship rights are, for example), and more.
Homeownership for single income households is not out of reach, and Dream Builders Realty is always here to help you with any and all of your home buying needs.
