As more young Americans postpone marriage, the number of individual homebuyers has increased. Applying for a mortgage on your own can be tricky as you’ll be relying on a single income and one credit profile to get approved for your loan. However, the more you know beforehand, the better you can prepare to increase the chances of your lender extending financing to you. Here are four important tips to obtaining home financing as an individual.
Look into your credit
If you’re applying for a mortgage on your own, the only credit profile lenders will be looking at is yours. This means your credit must be in top shape.
It’s smart to examine your credit health before you start looking for financing. This includes checking your credit history for accuracy with the three credit bureaus at www.annualcreditreport.com. Also, be sure to avoid any actions that could harm your credit score.
Save for down payment and closing costs
If you don’t have substantial savings, it’s wise to start setting aside money in advance of purchasing a home as various costs will be required. Establishing a good pool of savings prior to buying will help you in the long term as well since homeowners never know when sizeable maintenance or other costs will occur. For those who can’t come up with 20% of the home’s purchase price, which is typically the requirement for conventional (non-government) mortgages, many lower-down-payment programs may be available. These programs include, but are not limited to, 3% down conventional loans as well as government loans such as 0% VA and USDA programs and 3.5% FHA loans. Most of these loans come with their own specialized fees, and program requirements vary, so you’ll want to look into them closely with your lender before you decide to pursue one.
Secure your income
A monthly mortgage payment is a big responsibility for a single buyer. Without the flexibility to rely on a second earner’s revenue, it’s important to protect your income. Robust disability insurance, either from your employer or another source, will help you cover your obligations should you experience an illness or accident. A more specialized product called mortgage protection life insurance can cover your mortgage payment if you’re unable to work, and it may be easier to obtain than disability insurance.
Add another person to the loan
If you’re having trouble getting approved for financing, adding a co-borrower can be the answer. Doing so will allow the lender to consider their income, assets and credit history in addition to yours when deciding whether to extend financing. Just make sure your co-borrower knows what they’re signing up for: by putting their name on the loan, they may be liable if you are unable to make your mortgage payments.
Thanks to low-down-payment financing options, you don’t need to be well off to finance a home on your own. Nonetheless, you’ll need to make sure your credit is strong, your income is secure and that you find the right loan product to put homeownership within reach for you.