Buying a House on a Single Income

At a time when a lot of young adults are postponing marriage, the number of Americans buying a house on a single income is substantial. According to the mortgage software firm Ellie Mae, as many as 47% of Millennial home buyers last year were unmarried.

Because single mortgage applicants rely on one salary and one credit profile in order to secure a loan, getting through the underwriting process can be a bit trickier. However, the more you understand about what the process entails, the better your odds will be of getting a lender to say “yes.” Here are four crucial things that can help.

When you apply for a mortgage on your own, lenders will be looking at just one credit profile: yours. Needless to say, it has to be in great shape.

It’s always a good idea to review your credit report beforehand, but that’s especially true of solo buyers. You can get a free copy once a year, from all three credit bureaus, at www.annualcreditreport.com. Make sure that it doesn’t contain any mistakes that will make you look like a bigger risk than you really are. If you see any, contact the credit reporting company right away, so it can investigate on your behalf. (For more, see Check Your Credit Report.)

You’ll also want to avoid doing anything that could hurt your credit, such as making big credit card purchase right before or after you apply for a home loan. And think twice before canceling any old credit cards. You might think you’re helping your cause, but you’re actually reducing the average age of your accounts and lowering your credit utilization ratio, two things that could hurt your application.

A conventional mortgage typically requires a 20% down payment, something that can be hard to do if you’re drawing on only one person’s savings. If you can afford it and are thinking of applying for a conventional mortgage as a single person, take some time to compare interest rates, and mortgage types to decrease the amount of interest you'll ultimately pay.  

If you're struggling to come up with a down payment, though, as an alternative to the conventional mortgage consider a government-insured loan. Government-insured loans have a much smaller requirement – and sometimes none at all. For example, the popular Federal Housing Administration (FHA) mortgage program only mandates a 3.5% down payment. And if you’re a veteran or active member of the military, a Veteran’s Administration (VA) loan lets you finance the entire amount of the purchase, as long as it doesn’t exceed the appraisal amount. 

There are some caveats, though. With an FHA mortgage, you’ll have to pay an upfront mortgage insurance payment (which can be financed) as well as a monthly premium. VA loans don’t carry an insurance fee, but they do assess a “funding fee” that can either be spread out over the course of the loan or paid in cash. 

While low-down-payment requirements can help open the door to home ownership, they do carry risks. For example, paying 3.5% down doesn’t give you much of an equity buffer if the stock market takes a hit soon after you make the purchase. Putting down a little more, say 10% of the loan amount, will give you a little more peace of mind.

That first monthly mortgage payment can be startling for younger homeowners unaccustomed to such a big bill. As single home buyers rely on one source of income to pay the lender, it’s a good idea to take out some protection.

If your employer either doesn’t provide disability insurance or offers a bare-bones plan, you might consider looking into more robust coverage on your own. That way you’ll get help paying your bills should you experience an illness or accident.

A specialized product known as mortgage protection life insurance can also help take care of your mortgage payments if you become unable to work. It’s only intended to help with home loan payments (some policies are a big more flexible), so it’s not a comprehensive financial solution. Still, because it typically has a looser underwriting process, it’s an option for those with riskier jobs or poor health, who consequently have trouble finding affordable disability coverage. 

Having a co-borrower on the loan can sometimes help home buyers clear the underwriting hurdle, especially if you don’t have a long credit history. The lender will look at the co-borrower's income, assets and credit history – not just yours – when assessing the application.

While he or she may be doing you a huge favor by joining you on the loan, make sure the co-borrower knows the consequences. In the event you have trouble making your loan payments, the bank can go after the co-borrower, too. If you don’t want to worry about that, you should wait until you can qualify for a loan by yourself.

Thanks to low-down-payment programs, you need not be well-heeled to get a mortgage on your own. However, it does require having a sparkling credit report and making sure that you have sufficient income protection. Government-insured loans and co-borrowers can also be of help. (For more, see Self Employed? 5 Steps to Scoring a Mortgage.)