The shift from being a renter to a homeowner as a single person can be challenging since you must rely on yourself to understand everything from finding the right house to actually paying for it. But it is something doable even in today’s tougher lending world.
“If you are on your own, it can be intimidating, especially if it is your first home,” says Nicole Middendorf, CEO of Prosperwell Financial in Minneapolis. Her recent book, Lipstick on the Piggy Bank, helps women take control of their money in many situations of life including buying a house. Her advice can help single men, too.
“You first have to make sure it is a comfortable thing for you to do. Make sure you have a secure job, that you’ve saved money in case something happens after you buy the house and that you aren’t rushing into the decision,” she says. “You are 110 percent responsible for everything when you are single.”
She sees many single people think of a home as an investment. But she wants them to think of it as a place to live and a place that fits their lifestyle.
“Many people think of it as an asset. But I know many people that bought homes at $700,000, and they can’t sell them because they are underwater on their mortgages,” Middendorf says. “Values can go down.”
She also has single clients who have homes but are selling them and going into townhomes and condos. They don’t want to go into another winter shoveling snow or another summer mowing the lawn. When you are alone, you are the one responsible for all the maintenance and the cleaning.
Single, In Love, and Buying a Home
If a single person is in a relationship as they begin thinking about buying a home, they truly need to have some of those financial talks about credit card debt, student loan debt and other issues that can affect getting a mortgage – if you decide to buy a home together or even just live together.
“When people are in love, they jump into things too quickly. I see the ramifications all the time. Their credit history follows their social security number,” Middendorf says. “If you join your life with theirs, you join your finances with theirs. “
When looking for that perfect home, she suggests that you be realistic about what makes sense now. If you eventually want to get married and have children, that’s in the future.
“But it comes down to what you can afford now. It has to make sense to you now and fit into what you are doing now,” she adds.
According to a 2014 report by the National Association of REALTORS®, 16 percent of recent home buyers were single females, and 8 percent were single males.
What Loans are Right for these Single Home Buyers?
“For single people, there is concern of what will happen to their mortgage if something does happen in their life such as having a significant reduction in income or having a medical they can’t make a payment,” says Russ Williams, loan originator at Arbor Day Bank in Omaha.
The HomeReady mortgage program through Fannie Mae offers home buyers with limited funds for down payment and closing costs some great help such as flexibilities on credit and income sources, up to 97% financing. Still other programs offer 100% financing loan programs that are very flexible as well.
An FHA loan requires 3.5 percent down but also makes you pay an upfront mortgage insurance fee of 1.75 percent – which brings you back to not much equity at all when you begin.
“You need to sit down with a loan officer that can really talk about all the loans available for someone’s particular situation. Also, there are mortgage insurances out there that might offer job loss protection to help with the risk of foreclosure. But we always want the customer to communicate with us,” Williams says.
Homeownership means Stability for Single People
Laura Lasher, mortgage president at Arbor Bank, says that single people also want the chance to pull into their own garage and grow their wealth through a home investment.
“The key to single people is to really understand their own budget and their income and the stability of that income,” she says. “Everybody is different. But homeownership really makes people feel safe. And they are better employees when they own their own homes. Your employers know that, and they want you have your own home. You will show up for work more if you own a home. If you rent, you aren’t quite as obligated because you don’t have that mortgage to pay.”
So, make sure to check with your employer to see if they offer any down payment or closing cost assistance. You never know till you ask.
When looking for a home, Lasher still suggests the age old solution – location, location, location. You need to find the home that best suits where you want to live plus does it enhance your lifestyle with the things you deem necessary such as a backyard for planting a garden or a big soaking tub.
And if you are worried about the cost of maintenance, you can get protection with a home warranty.
“They can cost about $500 a year, but it can be negotiated into the closing and sometimes paid by the seller. It’s renewable every year, too,” Williams says.