Mortgages for Unmarried Couples – What You Need to Know

Mortgages for Singles and Unmarried Couples - What You Need to Know-150x150A 2009 statistic shows that 8 percent of all home owners in the United States were unmarried couples. You don’t have to be married in order to purchase a home as a couple, but there are a few things that you should be aware of. Buying a home as an unmarried couple can lead to some serious problems in the future if the two parties haven’t taken the necessary steps to protect themselves. Many couples believe that they don’t need a document to prove their love, but the truth is that it’s harder, and probably more expensive, to get out of co-ownership of a home than it is to get out of a marriage.

When you and your partner are borrowing and spending tens, even hundreds of thousands of dollars, it would be a great idea to draw up a contract that would protect both your interests. Marriage is a legal contract, and without that contract, an unmarried couple will have to come up with a way of protecting themselves the same way a marriage contract does.

Writing up the Contract

Life is full of unforeseen events, so having a contract between two unmarried people who are buying a home together is a wise choice, which will prevent unpleasant issues in the future. Most arrangements in a couple’s life can be made through agreements, but buying a home together is a serious matter and both partners should protect themselves through a contract. Here are a few things that the contract between two unmarried people who buy a home together should contain:

  • Each partner’s share. An even, 50/50 split might not be a great idea if the two parties are not making equal contributions to the purchase of the home. One person may come up with the down payment, which is a large portion of the purchase price, so the contract could say that this person owns a larger part of the home. If one of the partners adds value to the home by fixing it or improving it, the contract could also give this person a larger portion of the home.
  • What happens in case of a break up. Splitting up takes its toll emotionally, but it would be even harder to go through if a home is involved. Nobody wants to think or talk about break ups when planning on buying a home together, but covering every possibility now is better than regretting it later. If the two partners have made different contributions towards the home, then they should plan on how they will get their money back in case of a break up.
  • The option of keeping the home. When a couple breaks up, one of the partners may want to keep the home, so the contract should say how much the other person will receive. A more difficult scenario is one in which both individuals want to keep the home, so the contract should address this issue as well.

Taking Out a Mortgage Loan

After writing up the contract, the unmarried couple will most likely have to take out a mortgage loan. Unfortunately, it is at the lender’s discretion if they want to give out a loan to an unmarried couple.

Both partners will have to apply individually for the mortgage loan, and some lenders will require both of them to qualify before they give out the loan. Married couples are regarded as a unit, and are satisfied with only one of the partners to qualify for the loan. Both unmarried home buyers are required to be on the loan, so one person’s credit history may jeopardize the whole process.

Another possibility is to apply for the mortgage loan in just one partner’s name. If one person’s credit history prevents the couple from taking out a loan, the other can apply for the mortgage solely in his or her name. This can prove to be very risky, because the one person who applies for the loan will have full responsibility. In case of an unforeseen event, such as a break up, that person will find themselves stuck with having to pay the mortgage alone, or risk going into foreclosure and take a large hit on their credit score.

Buying a home as an unmarried couple is possible, but you will most likely encounter more difficulties than you would if you were a married couple. The most important thing to remember is that you have to think ahead and protect yourself from any unpleasant situation, however improbable it may seem. If you decide to get a mortgage loan as a single person, because your partner can’t qualify, then keep in mind that there is always the possibility of ending up having to pay off your mortgage loan alone.

Top Ten Steps to an Affordable Mortgage for Single Moms

Ten Steps to an Affordable Mortgage for Single Moms- 150x150The Federal Housing Authority (FHA) offers numerous opportunities that are advantageous for single moms. Statistics indicate that slightly less than 35% of the total number of homes in the US are occupied by single parents. Only 40% of those belong to single moms with very low income levels. A single parent caries the burden of many expenses to keep up with the high cost of living in this country, so having access to an affordable mortgage is imperative.

Benefits of Seeking a Mortgage as a Single Mom

  • Low monthly repayments. Unlike couples, a single mom has sole responsibility for finances. Being a single mom, you have options to obtain an affordable mortgage loan. Some programs can help you budget for mortgage repayments by taking out a portion or all of the payment directly from your paycheck.
  • Access to a variety of mortgage programs. There are many governmental and nongovernmental organizations that provide housing help to single moms. They build quality houses for single moms that come with affordable monthly mortgage payments, which gives easier access to gaining full equity on the home.
  • Access to bad credit mortgages. While couples can add up both incomes in order to qualify for a mortgage, a single mom has just her own to rely on. Many mortgagors have made it easier for single moms to qualify for mortgages by allowing mortgages for bad credit. This means that even with a low credit score, a single mom can still qualify for a mortgage.
  • Flexible refinancing solutions. Many mortgage loans for single moms have a refinancing option attached to them. This feature is meant to keep the single mom up to date with any changes taking place in their loan. Their credit rating actually improves over time through this plan. Such refinancing solutions protect against repayment default.

Steps to an Affordable Mortgage

  1. Check your credit score. Before you embark on the finer details of obtaining a mortgage, look at your credit report. Having a score above 700 is ideal- even having a score of 698 will raise your interest rate by a third of one percent, translating to a significant amount of extra money spent in the long run. The higher the credit score, the lower the interest rate, which means easier access to a mortgage.
  2. Weigh the advantages and disadvantages. As noted before, single moms have many expenses, including food, medical, and transportation. Before deciding to move ahead with the mortgage loan process, you should look at the pros and cons carefully. Analyze your budget and other monthly payments to see if you can manage a house payment.
  3. Check the qualification requirements. This is a rigorous process. You need to visit a number of lenders and find out their individual loan requirements. Check current mortgage rates, processing times and the amount of funding that you can qualify for. Some options for single moms include HUD loans, FHA loans, subprime loans, seller financing and rent-to-own. After doing this, you will know which lender will give the most funding paired with the lowest possible interest rate and down payment.
  4. Seek financial advice. If you are not financially savvy, you should consider seeking the advice of a financial adviser. They will provide you with information on the different types of mortgage loans, helpful programs, and other requirements that match your current needs with your financial situation. The financial adviser can easily predict how much you are likely to qualify for given your income, expenses, and credit score.
  5. Prepare all required documents. Among the documents that your lender will require includes your driver’s license, a utility bill and your social security number in order to authenticate your application. The lender will also require documents indicating your income, IRS tax returns, a recent bank statement and a letter from your current employer.
  6. Apply for the mortgage. A mortgage takes about 1 to 3 months to process. However, the processing period could be shortened if you provide all of the required documents in a timely manner. In other cases, you may qualify for a lower amount than the estimate you had from the financial adviser. If you find out these details in advance, then you will have more time to seek a subsidy or other mortgage program for single moms.
  7. Hunt for the right house. As the lender continues to process the loan, start hunting for the right house that fits your tentative budget determined during the loan pre-qualification stage. Among the factors you should consider when choosing a home is the cost of insurance, the location, price, taxes, maintenance and repairs.
  8. Close the deal. As simple as it sounds, this is a very tricky stage in mortgage processing. The closing costs include the agent’s fees, appraisal fees, processing fee and the lawyers. Add up all of these costs and find out whether or not you can manage to make the down payment. While the interest rate may be low, these costs can be high. You should calculate and select the option with the lowest total cost.
  9. Make the down payment. If the lender gives you the go ahead, you should make the down payment within the stipulated time period. In most cases, the down payment is 3.5% (excluding the closing costs). You should also have extra money set aside to take care of additional costs such as transportation, mortgage loan documentation and moving costs.
  10. Move in to your house. Once the mortgage has been approved and the down payment has been made, the lender will grant access to your home. Take care of your investment so that your home maintains or even increases in value. As you make monthly payments over the years, your home equity will keep rising.

Mortgage lenders may reject some applications for various reasons, from having too low of income to having too low of a credit score. If you were denied, there are still options, so check alternatives offered by HUD and the FHA.