Buying a home as a single parent

Raising your children on your own and saving for a home at the same time is a lot of work. But buying on one income is possible, and the law protects you along the way. This guide explains your rights with the lender, which income can help you qualify, how your taxes may be affected, what it means for a relative to sign with you and where to find free help. It does not tell you what to do in your case, but it does tell you what to ask.

The children who make your household a family protected by the Fair Housing Act

Under 18⁴

The least child support must continue to count as income with Fannie Mae

3 years⁶

Of the cost of your home that you must pay to file as head of household

More than half⁷

Your rights with the lender

Federal law is clear. The Equal Credit Opportunity Act prohibits a lender from discriminating against you in any part of the loan because of your marital status or your sex, among other things, or because all or part of your income comes from a public assistance program.¹

Regulation B adds two important protections for you:

• They cannot assume you will earn less because you have children. The lender may not use assumptions or statistics about the likelihood that someone will have or raise children and earn less for that reason.³
• Your marital status, only with three options. On a mortgage they may ask whether you are married, but only with the options married, unmarried and separated. “Unmarried” includes single, divorced and widowed.²

The Fair Housing Act protects you too. Familial status covers households with one or more children under 18 living with a parent or another person with legal custody, and also anyone who is pregnant or in the process of securing custody of a minor. And it is illegal for anyone who makes home loans to discriminate because of familial status in making them available or in their terms.⁴ If you feel you were treated differently, read Lending discrimination: your rights.

Your budget on one income

Lenders measure your ability to pay with the debt-to-income ratiodebt-to-income ratio (DTI)Your debt-to-income ratio (DTI) is all your monthly debt payments divided by your gross monthly income, that is, income before taxes. If you pay a certain amount each month across a car, cards, student loans and the mortgage you are asking for, and you earn three times that, your DTI is one third. Lenders use it to measure whether you can manage the payment; each loan type and lender sets its own limit, and assistance programs usually publish theirs. Paying down debt before applying improves your DTI.See the full definitionClose: all your monthly debt payments divided by your gross monthly income. Each product and lender has its limits.⁵ On one income, every debt weighs more, so lowering or paying off a card before you apply can make a difference. The guide Debt-to-income ratio and how to lower it explains how.

But what the lender calculates is not all that matters. Your real budget includes things that do not appear on your credit report, such as child care, school, food and transportation. Before you decide how much to pay for a home, build your family budget with all those expenses and see how much is left. And build a cushion for emergencies: if you get sick or lose hours at work, there is no other income in the home to cover you. The guide Building an emergency fund helps you start.

Income that can help you qualify

Your child support. It can count as income, but only if you choose to disclose it and ask that it be considered. With Fannie Mae, you need a written agreement or order, at least six months of full, regular and timely payments, and documentation that it will continue at least three years. Because child support is not taxed, it can be grossed up when your income is calculated.⁶ Regulation B also says that if you rely on it, the lender must count it to the extent it is likely to be paid consistently.³ The guide Child support, alimony and your mortgage application explains the FHA and Fannie Mae rules.

Your taxes as head of household. According to the IRS, you can file as head of household if on the last day of the year you are unmarried or considered unmarried, you paid more than half the cost of keeping up your home for the year and a qualifying person, such as your child, lived with you more than half the year, except for temporary absences such as school. With this status, your tax rate is usually lower and your standard deduction higher than if you file as single.⁷ Paying less tax leaves you more money to save. Child credits can help too; read EITC and child tax credit and file for free at a VITA site.

Co-borrower or co-signer: if a relative signs with you

Sometimes a parent or sibling offers to sign the loan with you so you qualify. There are different ways to do it, and they do not mean the same thing:

Three ways a relative can sign

Owner and debtor

Co-borrower who lives with you

• Signs the note and is usually on the title
• Their income and debts are added to yours
• Owns the home with you

Fannie Mae B2-2-04

Borrower who will not live in the home

• Signs the note and owes the whole debt
• May or may not be on the title
• Cannot be the seller or the agent

Fannie Mae B2-2-04

Co-signer or guarantor

• Signs the note and owes the whole debt
• Has no share of the home on the title
• If you do not pay, they get billed

In every case, whoever signs owes the full debt if you do not pay; talk about that before signing.

According to Fannie Mae, co-signers and guarantors sign the note and are jointly liable for it, but have no ownership interest on the title. Non-occupant borrowers also sign and are liable, and may or may not be on the title. None may have an interest in the sale, such as the seller or the agent. And on manually underwritten loans, if that person’s income is used, you, as the one who will live in the home, must make the first 5% of the down payment from your own money, unless the loan is 80% of value or less or you can use a gift or other permitted help; also, your DTI using only your income cannot exceed 43%.⁸

Signing for someone carries risks for the relative: read Risks of cosigning a loan or lease and Buying with family: co-borrowers before you decide.

Questions to ask the lender

Bring these questions to every lender you talk to, and compare the answers:

• How will you count my child support and what papers do you need?⁶
• What maximum debt-to-income ratio do you use for the loan you are offering me?⁵
• Do you accept a gift from a relative for the down payment? The guide Gift money from family explains the letter you will be asked for.
• If a relative signs with me, will they be a co-borrower or a co-signer, and what changes?⁸
• What would my total monthly payment be, with taxes and insurance included?

Ask for each offer in writing on a Loan Estimate, so you can compare them line by line. The guide How to compare Loan Estimates shows you how.

Programs and free help

Each down payment assistancedown payment assistance (DPA)Down payment assistance (DPA) is money a public or nonprofit program contributes toward your down payment and sometimes your closing costs. Many states, local governments and nonprofits offer programs to make homeownership more affordable; most focus on low- and moderate-income families buying their first home, and some target teachers, firefighters and other public service employees. The help can be a grant you never repay, a second loan with no payments that is forgiven over the years or repaid when you sell, and many can be used with a regular FHA or conventional loan.See the full definitionClose program has its own requirements. The Which programs do I qualify for? tool helps you find the ones in your area, and the guide Down payment assistance: how it works explains the types. Many require a homebuyer education coursehomebuyer education courseA homebuyer education course is a class with a set curriculum that covers the homebuying process, how to maintain a home, budgeting and why good credit matters. It can be in a group, in person, online or by phone. It is not the same as housing counseling, which is one-on-one help with an action plan for your situation. Some loans and some down payment assistance programs require you to finish a course before closing, especially first-time homebuyers. When you finish, you get a certificate.See the full definitionClose.

A HUD-approved housing counselorHUD-approved housing counselorA HUD-approved housing counselor works at an agency HUD has approved to provide housing counseling: independent, expert advice customized to your situation about buying a home, renting, a missed mortgage payment, a foreclosure or credit problems. The agencies usually charge little or nothing; many serve in Spanish and offer the homebuyer education course several assistance programs require. They are not lenders or real estate agents and sell you nothing. Your county page lists the official agencies with phone numbers.See the full definitionClose can review your budget, your credit and the programs in your area with you, often at little or no cost. You search by ZIP code on the CFPB’s website.⁹

Your plan to buy on one income

1. 1. Build your real budget

   This month

   With child care, school and an emergency cushion.⁵

   Try it with your numbersFamily budget

2. 2. Gather your child support papers

   If you receive it

   The order or agreement and six months of deposits.⁶

3. 3. Check how you file your taxes

   At tax time

   Ask whether you qualify as head of household.⁷

4. 4. Talk with a HUD counselor

   Before house hunting

   Review your credit, your savings and the programs in your area.⁹

5. 5. Look for down payment help

   Before preapproval

   Each program has its own requirements; find the ones in your area.⁹

   Try it with your numbersWhich programs might I qualify for?

6. 6. Decide whether someone signs with you

   Before applying

   Co-borrower or co-signer; both owe the whole debt.⁸

Example with real numbers

A mother buying on one income

An example in words, not a real case, of how the rules combine.

She receives child support under a court order

She discloses it and brings six months of deposits

Her youngest son is 8

The support continues more than three years

She files as head of household

She pays less tax and saves the difference

Her father offers to sign as co-signer

He would owe the whole debt if she does not pay, without being an owner

What she decides

Talk with a HUD counselor before asking her father to sign

The rules come from Fannie Mae and the IRS.⁶⁷⁸ Try the how-much-house calculator with your income.

Run it with your numbersHow much house can I afford?

Also think about your children’s future

When you are the only adult in the home, it is wise to think about what would happen to the house if something happens to you. The guide Wills, transfer-on-death deeds and inheriting a home explains the options for leaving the home to your children, and How to hold title with family explains the ways to own with someone else.

If this is your situation

You receive child support

It can count as income if you disclose it, have six months of payments and it continues three more years.⁶

Part of your income is public assistance

The law prohibits discrimination because your income comes from public assistance.¹

Your mom offers to sign with you

As a co-signer she would owe the whole debt without being an owner; decide first how to sign.⁸

You are pregnant

Familial status protection also covers anyone who is pregnant.⁴

You pay almost all the cost of your home

Ask whether you qualify as head of household on your taxes.⁷

Costly mistakes

• Mistake: Not disclosing child support out of embarrassment or not knowing.

  Instead: If you disclose and document it, it can help you qualify.⁶

• Mistake: Figuring how much home you can afford without child care.

  Instead: Build your budget with all your real expenses.⁵

• Mistake: Asking a relative to sign without explaining the risk.

  Instead: Whoever signs owes the whole debt if you do not pay.⁸

• Mistake: Filing as single when you qualify as head of household.

  Instead: Check the IRS requirements; it may lower your taxes.⁷

• Mistake: Staying quiet if you are treated differently for having children.

  Instead: The law prohibits that discrimination; keep everything in writing.³⁴

What to do this week

1. Build your family budget with child care included.⁵
2. If you receive child support, gather the order and six months of bank statements.⁶
3. Check whether you qualify as head of household for your next return.⁷
4. Find a HUD-approved housing counselor by ZIP code.⁹
5. Try the how-much-house calculator and look for help with Which programs do I qualify for?.⁵
6. If a relative will sign with you, read Risks of cosigning a loan or lease together.⁸