Buying a home is a major expense for any couple. When you are single, it makes it even more difficult to buy a home. So, you might wonder how to afford a house on a single income. There are a number of ways to make home ownership more affordable. Here are the top 8.
How to Afford a House on a Single Income
Before you start the process of checking out homes you might like to buy, or even before you start talking to banks and lenders, there are a few things you need to do to make buying that dream home a lot more doable.
1. Be Sure Your Credit is in Good Shape
Before you do anything else, you need to check your credit. If your credit score isn’t in good shape, you won’t be able to buy a house.
This is especially true when you are single. All eyes will be on your credit and your credit alone.
The bare minimum credit score to qualify for a mortgage is 620. It’s true that FHA loans may go as low as 580, but honestly, the higher your credit score the better.
If you have a score of 740 or higher you will receive a better interest rate which means saving thousands of dollars over the course of your mortgage.
So, what if your credit score needs improvement?
2. Pay Off Debt
If your credit score is low, one of the best ways you can improve it is by paying off debt.
Take a close look at your credit card debt.
If it is high, start here.
Start paying off your credit cards with the lowest balance first and then keep moving up to the highest balance.
That way you can use the minimum payments you had to make and apply them to your other credit card.
You’ll get them paid off faster that way.
Just be sure you don’t close out your credit cards even when they are paid off.
This will actually hurt your credit score because it will lower your credit utilization rate.
Your credit utilization rate is the percentage of available credit you are using divided by the total amount available.
For example, if you have one credit card with a credit limit of $3,000 and you have a current balance of $1,000 dollars, your credit utilization rate is 33 percent.
($1,000/$3,000 = .33)
You want to keep this percentage below 30 percent. Once it gets above 30 percent it can negatively impact your credit score.
So, if you have two credit cards that both have a credit limit of $2,000 dollars and you own $500 dollars on one of them and $700 dollars on the second one, you have a credit utilization rate of 30 percent.
Let’s say you pay off the $500 dollars.
You now have a credit utilization rate of 17.5 percent which is great.
However, if you closed the paid-off credit card account, your credit utilization rate would bounce back up to 35 percent because you would only have $2,000 dollars in credit available instead of the $4,000 dollars.
So…pay off your credit card balances but don’t close your accounts.
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3. Don’t Take Out Any Additional Credit
While we’re on the subject of credit, don’t take out any additional credit while you are looking for a new house.
This can cause all sorts of issues for your credit scores.
So, stay away from big purchases, store credit, or any other types of credit in the six months to a year before you start to look for a new home.
4. Beauty is in the Eye of the Beholder – The Fixer Upper
Yes, we all want a brand new house that still has that new house smell where everything is perfect and move-in ready, but think again.
If you have a single income, you might want to think about purchasing a home that is a little less expensive.
That can mean a fixer-upper.
If you buy a house that needs a little tender loving care, chances are you can pay a lot less for it.
This can certainly make buying a house more affordable.
Just keep in mind, it needs to have good bones.
You don’t want to buy a house that is going to fall down on top of you.
Also, take a hard look at the major components of the house such as the wiring, plumbing, heating, roof, and windows.
I just bought what some might call a fixer-upper three years ago.
It had a new roof and brand new windows, so that was great.
The wiring is in fine shape as well.
Even so, my house is well over 100 years old and it had an old boiler that was a good 50 years old.
The plumbing had issues as well because it was put into the house after the house was built.
I used the boiler and dealt with the plumping for three years and all was fine.
This year, I had the old boiler torn out as well as all the pipes and radiators, and had mini-splits put in that will provide heat and air conditioning.
I love it, but it did cost me $21,000 dollars.
The new plumping went in after that and that was another $15,000 dollars.
The point is, a fixer-upper is great, but be sure what you have to fix won’t cost you so much money that you can’t afford it.
5. Buy Less Than You Can Afford
Too many people get approved for a large loan and then go out looking for a house at the top of the approved loan amount.
This can cause all sorts of issues down the road when you have an emergency but you are stretched so thin that you can’t afford your mortgage payment and emergency at the same time.
If you have purchased a home that is less than you can afford, then you will have more room in your monthly budget to pay your bills, your mortgage, and to set aside money each month for an emergency fund and investments.
You’ll sleep better knowing your mortgage is easily handled.
Trust me, I know this for a fact.
My mortgage is a whopping $300 dollars a month.
Now you might think I live in a dump, but I don’t. It is actually a really nice house that just needed some love, but this brings me to the next tip on how to afford a house on a single income.
6. Move to a Less Expensive Area
I know moving isn’t possible for everyone, but if you can, and you live in a super expensive area, you might consider it.
I live in a small town in the midwest, so house prices are really cheap here.
That’s why I could get a fixer-upper, 1,900 square foot house, for a little bit of nothing and have $300 dollar mortgage payments.
Do I sleep well at night knowing how low my mortgage payments are even though I could afford a lot more?
You bet I do.
Yes, I could have bought a really expensive home and gone far into debt, but I chose not to and now I don’t ever have to worry about paying my bills or my mortgage.
It also makes buying a home much more affordable.
So, if you live in a really expensive city, consider moving to a more rural area.
You’ll be shocked at just how cheap home prices are.
7. Get An FHA Loan
If your credit isn’t great or you don’t have all the money you need for a down-payment, consider an FHA loan.
As mentioned above, they will accept a lower credit score, down to 580 and they only require 10 percent down instead of the traditional 20 percent.
You can find out more about FHA loans here.
8. Buy At the Right Time of Year
You might be surprised to learn that there are better times of the year to buy a house than other times.
For starter homes, there are more available in the fall as opposed to the summer months.
If you try to buy a house in the summer it will be more of a seller’s market. That means they will be less willing to deal with you and you will end up paying more for the house.
On the other hand, if you buy a house in the fall, it will be more of a buyer’s market and the seller will be more willing to deal with you.
You might get the house for less money and the seller might even pay some of the closing costs.
Can you get a home loan with only one income?
Yes, you sure can. It does mean the bank is looking at only one income and one credit score to determine whether or not they will lend you the money.
That means your credit needs to be a little better, and your job will need to be very secure.
But there is no reason you can’t buy a house with one income.
People do it every day.
To Sum it All Up:
There is no getting around it. Buying a house is expensive and when you’re trying to do it on one income it can seem a lot more difficult, but don’t give up. With a little pre-planning and finding the right house such as a fixer-upper or one that is less money than you can afford can make all the difference.