For most single parents, raising their children is a financial challenge. Providing a roof where they can grow is even more difficult with a single income source. However, there are programs designed to help single mothers obtain funding to purchase a home.The federal government sponsors several mortgage programs that help low income families purchase homes.
Some are available to specific groups of people such as veterans and their surviving spouses. Others are accessible to anyone who meets the income requirements. In this article, we discuss how single mothers can gain access to a mortgage through these programs.
An FHA loan is a mortgage backed by the U.S. government. These loans are offered by financial institutions which have been approved by the Federal Housing Administration. FHA loans have much lower requirements when compared to standard mortgage loans. For example, people can qualify for an FHA loan with a credit score as low as 500, giving only 10 percent down payment. Families with scores above 580 are given a more generous offer, as they have to put a down payment of only 3.5 percent.
FHA loans are very popular among single mothers because of their lower financial requirements. Raising children is hard, especially when done with a single source of income. As a result, single parents often have lower credit scores which may close the door to standard mortgage loans. FHA loans are an optimal solution that adapts to their lower annual income and payment capacity. Some institutions even provide financial assistance to help single parents cover down payment.
Another attractive feature of FHA loans is their flexible debt-to-income ratio requirements, or DTI. Debt-to-income ratio represents how much income goes into monthly debt payments, including credit card bills, car loans and mortgages. For example, someone earning $30,000 each year, paying $875 a month to debt accounts, will have a 35 percent debt-to-income ratio. Most financial institutions will approve FHA loans to applicants with a debt-to-income ratio as high as 50 percent. To know more about FHA loans, you can check our article on the matter.
A VA loan is a mortgage backed by the U.S. Department for Veteran Affairs, or VA. These loans are only available to veterans, military members currently serving, reservists and surviving spouses of deceased veterans. Single mothers are eligible for a VA mortgage loan if their husbands died in the line of duty or as a result of service-related disabilities. However, if their husband was discharged under dishonorable conditions, the surviving spouse will not be eligible for a VA mortgage loan.
VA mortgage loans can be used to purchase single-family homes, multi-unit properties and newly built properties. To get approved for a loan, single mothers will need to obtain a Certificate of Eligibility, which serves as proof of the time their husbands served in the military. This certificate can be obtained through several methods. People can ask their preferred VA approved lenders for the certificate, use the U.S. Department of Veteran Affairs’ eBenefits website, or mail the local VA office with form 26-1800.
The income requirements to get approved for a VA loan are different than other government-backed mortgages. For example, although VA lenders do not have a set income threshold, single parents must have a stable income source that can cover all monthly expenses, including the VA mortgage. They must also have some excess income to deal with unexpected expenses and emergencies. Lenders usually look for credit scores above 620. However, they have recently started accepting applications from people with credit scores as low as 500. That includes single mothers who have struggled to keep their scores high enough to qualify under normal circumstances.
USDA loans are mortgages backed by the Department of Agriculture, or DA. These loans are available to eligible rural and suburban single mothers who are interested in buying property in the countryside. USDA loans require no down payment and have more affordable mortgage insurance rates than other government-backed loans such as FHA and VA mortgages, at around 0.35% annually. Unlike FHA or VA home loans, USDA loans can be used to repair or upgrade existing homes. However, the maximum borrowing amount for this purpose is $27,500.
USDA mortgages are issued directly by the government through the USDA loan program or by local lenders who have been approved to issue them. However, only single parents who have low or very low income can request a loan directly from the USDA. They enjoy additional financial benefits, such as interest rates as low as 1 percent. Single mothers above the income threshold have go request approval from local lenders, which often have higher interest rates and require credit scores of at least 620.
USDA lenders compensate no down payment with stricter income requirements. First, debt-to-income ratio must be lower than 41 percent unless your credit score is above 680. Single parents must also provide proof that they will have steady income for at least 24 months. People with poor or no credit history can become eligible using alternative credit references such as rental and utility payment histories.
More than a third of children are now being raised by single parents. Offering them more opportunities to have a happy childhood, away from financial difficulty, is among the top priorities of the U.S. government. There programs were designed to help families provide a home to the new generation. And that includes single mothers.