Single Parent Home Loans - How to Choose a Loan
Are you thinking about purchasing a home and getting a single parent home loan? As a single parent, a home purchase can be a scary proposition. You want your kids to live in a safe neighborhood and have a yard to play in. But, can you afford to buy a house that will meet your needs?
What Payment Can You Afford
If you are comfortable with the amount that you are paying monthly in rent, then use this Mortgage Payment Calculator to figure out your estimated payment for different loan amounts and interest rates. For the loan term, use a thirty year, fixed rate. Why to choose this loan term will be covered later in this article. You will want to determine the size of mortgage that corresponds to the monthly rent payment that you have been making. Also, you will need to allow four percent of the home's value yearly for maintenance costs which should be added on to your "payment" so that you account for all housing-related costs even though you don't pay that money to the mortgage company. If you don't have twenty percent of the house purchase for a down payment, you may be required to pay private mortgage insurance. This could add over one hundred dollars per month to your payment. When you talk with your lender, ask if PMI will be required and if it will be part of your payment. If so, then reduce the price range of your target home to compensate for the PMI amount.
Now, look at the real estate listings for your area. Are any of the homes that interest you in your price range? If your answer is no, then figure out what the payment would be for the price range that interests you. Do you think that you could afford that payment? Try making that payment for at least six months, but put the amount that is above your monthly rent payment into savings. If you are comfortable handling the larger payment, then you are ready to go house-shopping. Otherwise, you may need to save more money until you have a large enough down payment so that you can shop in your desired price range.
Get Preapproved
Next you need to get preapproved for a single parent home loan. Preapproval will make buyers more willing to accept an offer from you, and you also won't waste your time house hunting if you cannot get preapproved. Talk with several lenders to see what terms such as interest rates, down payment required, etc., that you can get. Commercial banks often have more stringent requirements for loans, so look for lenders that cater to a wider range of customers like single parents.
The lender may try to convince you that you can afford a higher monthly payment. If you've followed the steps above, you should already know what is affordable for YOU. Since you probably only have one income, and it can be iffy to rely on a significant other to help with the bills (unless you have remarried), don't let the lender convince you to buy more house. You may be enticed with different loan types that will give you a lower payment at first so that you can get a more expensive house. Remember that payments for the various flavors of adjustable rate mortgages can go up tremendously if interest rates rise. Adjustables are best if you can comfortably handle the worst-case payment scenario, and you plan to stay in the house for less than five years. Otherwise, AVOID adjustable rate mortgages.
Do not buy a more expensive house than you can afford thinking that your income will be going up later when you graduate college or get the big raise. Buy based on your current circumstances since you don't know for sure where your income will be in the future. If you don't have enough income to get what you want now and don't want to compromise on a cheaper house, then keep renting until your higher income becomes a fact. Also, don't count on the house appreciating in value to justify "stretching" into more house than you can really afford. Although over the long-term, most houses will go up in value, there is no guarantee, and you may find yourself in a circumstance where you want to sell right away even though the current market price may be less than you paid.
You may also be tempted by lenders asking if you would like to get cash out when you close the loan. Remember that this cash amounts to a thirty-year loan for that amount. Do you really want to buy furniture or other consumables and then pay for them for the next thirty years?
The Best Single Parent Home Loan
For most single parent home loans, a thirty year fixed rate mortgage is best. Your overall payment could go up if your escrow costs such as insurance rise, but the mortgage portion of your payment will not increase. You may be considering a fifteen year mortgage to get your house paid off sooner. However, it's best for single parents who only have one income source to get the lower payments of the thirty year mortgage in case of income reductions or unanticipated expenses in the future. Make sure that the loan you get has no prepayment penalty. Then, you can put extra toward your payment each month so that the loan is paid off in fifteen years without being obligated to make the higher payment.
Be a careful shopper as you search for the best single parent home loan for you, and you will get to truly enjoy your new home without getting in over your head financially.
