If you’re single or the only breadwinner in the house, you might be wondering, can I afford to buy a house on my own? It’s a good question. You might be able to, but you’ll have to look at several factors that your lender will take into account before approving you for a mortgage.
Can I Afford to Buy a House on My Own
Buying a house on your own isn’t much different from a couple purchasing a new home.
The only real difference is that the bank will want to take a really close look at how secure your financial life currently is because if you lose your job or have some other catastrophe, there is no one else to make your monthly payments.
So, before you start house shopping and checking out lenders, you will need to take a close look at your personal financial situation.
Here’s what you will want to know.
1. Your Credit Score
You are going to need a really good credit score.
If yours is average at best, you might want to spend more time getting it into better shape before you start house hunting.
The worst thing you could do is find your dream home and then not be able to buy it due to a low score.
Give yourself a year to see if you can improve it and then start looking for your new home.
2. How Much Money You Have For a Down Payment
Most traditional lenders will want a 20 percent down payment.
If you don’t have that much cash, you might be asked to purchase private mortgage insurance. This will add to your monthly mortgage payments.
If you are a first-time buyer you might qualify for a government-backed loan such as an FHA loan.
If that’s the case, you might be able to get away with a 3 to 5 percent down payment.
Even so, the more you can put down the better.
Not to mention, it will reduce the amount you need to borrow and your payments.
You might even be able to score a lower interest rate with more money down and that can save you thousands of dollars over the life of your mortgage.
3. Can You Afford Closing Costs
Closing costs tend to land in the range of 2 to 5 percent of your mortgage amount.
So, if you are purchasing a home in the price range of $250,000 dollars then you would need $5,000 to $12,500 dollars at closing.
This is above and beyond your down payment.
4. How Long You’ve Been at Your Current Job
Mortgage lenders like to see job security when loaning money.
You will need to have worked for the same company for at least two years and longer is better.
If you have just recently changed jobs, then you might not be able to get a loan.
From the bank’s perspective, while you might be making X amount of dollars now, how do they know you will still have your job and be making that six months from now.
If you have been at the same job for a number of years, then banks feel more comfortable that you will continue to earn your current salary or more going forward.
This means if you are thinking about buying a new home, don’t change jobs until after you have signed on the dotted line.
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5. Your Annual Income
Because you are buying a home on your own, you will need more income than if you were buying a house with someone else.
You will be solely responsible for making the payments, so your lender will take a close look at your monthly income.
It will need to be high enough to cover any current debt you might have as well in addition to adding on a mortgage, property taxes, and insurance.
Banks want your housing costs to be no more than 30 percent of your income before taxes.
That means if you are making $4,000 dollars per month, your mortgage shouldn’t be more than $1,200 dollars per month at the most.
($4,000/.30 = $1,200)
You will need to check out your housing market to determine if you can find a home with a purchase price that fits your budget.
There’s no point in finding a house you can’t afford.
6. Your Debts
Another aspect of your personal financial situation you need to look at is how much debt you currently have.
Debt such as credit card debt, student loan debt, auto loans, and personal loans all require monthly payments.
These monthly debts need to be below 30 percent of your income as well
So if your monthly debt payments are $1,000 dollars per month and you are making that $4,000 dollars per month, your debt payments would be 25 percent of your income.
($1,000/$4,000 = 25%)
If you have a lot of debt currently, then adding a mortgage might not give you enough wiggle room if you have any unexpected expenses.
Your lender will want to make sure you have enough extra in your monthly budget to ensure you can make your mortgage payment if something comes up.
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To Sum it All Up:
Buying a home on your own is a little more difficult simply because you will need to be able to meet all the lender’s requirements on your own. You don’t have a second income to help get you over the threshold. Even so, if you don’t have a lot of debt, have a good secure income, and the money for a healthy down payment, you should be able to find a house in your price range that you can purchase.
A 30-year mortgage might be best, so your monthly payments are less than if you were to get a shorter-term loan. You can always add extra money to your payment each month if you want to pay your mortgage off faster.