Single mothers face many financial challenges, but owning a home doesn’t have to be one of them. Although national programs catering to single moms are not available at this time, alternatives are available to assist financially and provide guidance on the home-buying process.
Down Payment Assistance
Buying a home requires a down payment – typically 20% of the purchase price. A substantial down payment increases the odds of mortgage loan approval and can lower the monthly payment, making home ownership more accessible. Single mothers with a limited income often find the down payment requirement to be the largest barrier to buying a home. Most down payment assistance programs for single mothers come in the form of grants – some of which need to be paid back.
Individual Development Accounts
An Individual Development Account (IDA) is a matched savings plan that helps those with limited income allocate funds toward the purchase of a new home. Each dollar saved in the IDA is matched. These accounts, which remain open from six months to a few years, are made possible by collaborations between financial institutions and nonprofit organizations. Single mothers who have difficulty saving because of low income may find these accounts beneficial. To qualify for consideration, applicants must:
- Meet minimum income requirements
- Be able to contribute to the IDA account with funds derived from earned income
- Not have assets that exceed $5,000
- Be debt-free or have a minimal amount of outstanding debt
- Complete a series of financial education courses on budgeting and saving
- Complete education courses on the purchasing process before buying the home
Down Payment Assistance Programs by Location
A large number of states offer down payment assistance programs for first-time homebuyers. Programs such as these may be helpful to single moms with limited income. Examples of these agencies across the country include, but are not limited to:
- California Housing Finance Agency: California offers the CalFHA Conventional Program, a first-time homebuyer program where the state partners with approved lenders to give low down payment mortgages to eligible residents. Pre-purchase financial counseling is required and there are income limits for participants. Interest rates and terms can vary depending on the applicant’s income and credit.
- Louisiana Housing Corporation: Single moms in Louisiana may be eligible for assistance from programs helping with both down payment and closing costs.
- Texas Department of Housing and Community Affairs: Residents can apply for assistance with down payments and closing costs with the My Choice Texas Home program.
- Virginia Department of Housing and Community Development: Specific to low and middle-income residents, the Acquire, Renovate, and Sell program helps match applicants with undervalued homes and special financing. Interest rates and terms can vary depending on the applicant’s income and credit.
- Washington State Housing Finance Commission: The down payment assistance program provided by the state offers low-interest, deferred payment loans for down payments.
More Programs by State
For a complete listing of these programs, search the HUD directory. Select your state of residence and view the contents of the "Buying a Home" section for a list of agencies that offer down payment assistance. County and local programs are available in some states.
Since mortgages specific to single mothers are not common, searching for loans designed for low to middle income applicants is best. These loans will be more forgiving of higher debt-to-income ratios and lower down payments than standard, conventional mortgages will be.
FHA mortgages offer many perks to those with limited income who may otherwise have a difficult time securing financing. The low 3.5% down payment requirement (which may be higher depending on credit) is much more realistic than the standard 20% down payment. In addition, qualification criteria, such as credit scores, are less stringent than traditional mortgage products and the interest rate offered is typically very low. To locate FHA approved lenders, search HUD’s database.
United States Department of Agriculture Loan
If you are a single mother searching for a home in a rural area (designated by the USDA), this type of loan may be a good option to consider. USDA loans cater to low and mid-income individuals who have a credit score of 620 or higher and meet specific income requirements. The most appealing feature is the ability to forgo making a down payment. To learn more about the program or see if you pre-qualify, visit the USDA website.
Single moms who are eligible for VA loans should consider this option as it eliminates the need for a down payment. VA Mortgages are also guaranteed by the Department of Veterans Affairs, making them more attractive to prospective lenders, even if the applicant has less-than stellar credit or low income.
Affordable Housing Solutions
Organizations exist that try to help low to middle-income people obtain a home; single moms on a limited income may be eligible for these programs.
Habitat for Humanity
Because they envision a "world where everyone has a decent place to live," this organization gives those with restricted income the opportunity to apply for an affordable Habitat for Humanity home. To qualify for consideration, applicants must:
- Be US citizens
- Earn a consistent wage that meets income requirements
- Have an adequately funded savings account
- If approved, attend courses on home ownership
- Have the ability to contribute a reasonable down payment
- Have the ability to make timely monthly payments
- Assist in the construction process of new Habitat homes, including your own
U.S. Department of Housing and Urban Development (HUD)
The HUD Home Store sells one to four unit residential properties that have been foreclosed. Many of the homes were repossessed as a result of a defaulted mortgage insured by the Federal Housing Administration (FHA). The selling price accurately reflects the worth based on the HUD appraisal. HUD will pay closing costs if requested by the buyer. If the home needs repairs, the FHA 203k Rehab Loan permits repair costs and loans to be merged into one mortgage product. For moms on a limited budget, this may be the solution to buying a home.
Fannie Mae offers residential properties for sale to buyers through its Home Path Properties program. The homes are available at rock-bottom prices as they are foreclosures, and some are eligible for Home Path Financing that offers flexible mortgage terms and the option to make a low down payment.
Your local Housing Authority may have information about local programs designed specifically to help single moms become homeowners. These programs may come in the form of down payment assistance, grants, or educational programs.
Check with your local Housing Authority to find out if there are special programs for which you may be eligible.
Things to Consider
Available programs to help single moms buy a house can vary by location. Some non-profit organizations offer assistance in their region. With no national program specific to single moms, local resources or programs for lower income applicants may be your best bet. Here are some additional tips to keep in mind:
- Don’t disregard a loan program designed for first-time homebuyers, even if you previously owned a home. Typically, as long as you haven’t owned a home in three years, you are eligible for one of these programs.
- Lenders will want to know where the funds for your down payment are coming from; so if a relative or close friend is giving you the money, the lender will want to know if that money is a gift or a loan, and it may affect your eligibility for a mortgage.
- Even when participating in a program for first-time or low-income borrowers, your debt-to-income ratio and credit history will have an impact on the terms of the loan, or if participation in the program is approved.
- Watch out for scams! Some scammers pose as federal agencies or credible lenders when they actually aren’t. Check directly with the agency or lender to ensure the representative is legitimate.
Selecting a Home That’s Right for You
Once you are ready to take the next step towards home ownership, be sure to compare your options and select the program that is most suitable for you. Using the services of a real estate professional may also facilitate the home-buying process. As with any borrower, it’s important to understand all documents you sign and don’t allow anyone to pressure you into signing something you don’t understand.