With only half of American adults married today, it stands to reason that many don’t wait until they’re married to buy a home. In fact, the latest figures from the US Census Bureau revealed that 38.4% of owners did not have a partner.
Still, while buying a home alone isn’t a rarity these days, single buyers face a tougher road in today’s seller’s market. Competition for homes is fierce, so many single home buyers are scrambling to have the financial wherewithal to gain an edge.
“If you’re the sole source of income, you don’t typically see the same type of earning capacity or wealth aggregation. This can be difficult in such a hot market,” says Katie Thurbercertified real estate seller at Serhant.
Why Single Homebuyers Might Struggle Today
While a competitive housing market may favor buyers with two incomes over one, that doesn’t stop single buyers from entering the fray.
“A lot of single people are looking to buy a house these days,” says Elisabeth Sugar Boesea real estate broker with Coldwell Banker Realty. Many are “young people who are putting off marriage until later in life, but still want to move forward with investing in a home.”
Another great group? “Recent divorcees who need housing after separation,” she adds.
“With interest rates as low as they are, individuals can often afford a home without a second income,” says Melissa Dorfmana real estate broker with Living room real estate in Portland, OR. “This is especially true for people who have purchased homes before and have the equity to buy their next home with a larger down payment. Most of my single buyers get long-term financing that competes with monthly rental prices. »
Indeed, with rental rates rising rapidly in the United States, renting is no longer as attractive as it once was.
“The singles I know who are buying homes are older millennials and Gen Xers who are tired of renting and seeing their monthly charges go up year after year,” says Jameson Tyler Drewpresident of Anubis Properties.
Why Single Homebuyers Might Face Higher Interest Rates
Yet despite the many market forces prompting Americans to jump on the homebuying bandwagon right now, mortgage lenders could prove to be another hurdle for singles, who will have to put in the effort to prove that they can take out a large loan on their own. With inflation reducing people’s earning capacity, some lenders may worry that single borrowers may not have a buffer (i.e. a spouse or partner) to help repay the loan in the event of a difficulties.
“Buyers of a single-family home are at a higher risk of foreclosing on a home because they won’t have someone else to fall back on during tough times,” says Jason Geliosrealtor with Community Choice Realty in Birmingham, MI, and author of “Think Like a Realtor.”
In some cases, lenders grant a loan to a single borrower at a higher interest rate to compensate for the perceived potential risk. That’s what happened to Matt Wooldridgefounder of Invision Roofing in San Antonio, TX when he applied for a mortgage.
“The biggest challenge I faced when buying a house as a single person was a higher mortgage rate. As I am a single income household, it was much more difficult to convince lenders that I will be able to repay the loan,” he says. “It took me a while to find a lender who was willing to offer me a mortgage, and even then I was billed with a rate much higher than average. It was a heavy burden to repay.
How Single Buyers Can Succeed
Although single homebuyers can face unique challenges in a competitive market, there’s a lot they can do to strengthen their position and land a home they’ll love. Here are some strategies that can help you.
Know how much house you can afford: Lenders will generally want a homebuyer’s debt from all sources (mortgage, credit cards, student loans, etc.) to be no more than 36% of their gross income (i.e. before taxes ).
“Usually the difficulty for buyers is that with one income, their debt ratio can often be tight,” says Dorfman. “We have to be very careful to stay within their buying range.”
So the first step for single homebuyers (and all homebuyers) is to understand their income, debts, and how a home fits into this picture. You can do this by entering your numbers into an online home affordability calculator, which instantly gives you your debt-to-income ratio so you know how much home you can afford.
Have your loan co-signed by a guarantor: Just because you only have one income doesn’t mean you can’t boost your purchasing power in other ways. Getting a guarantor to co-sign your mortgage application can give you the extra financial boost you need to appear more attractive to lenders and sellers.
“It helps you qualify for better terms, bigger loans, and dramatically increases your chances of approval,” says Cliff Auerswaldpresident of All Reverse Mortgages.
Just be sure to choose your guarantor wisely, sticking to trusted friends or family, as they will be liable if you cannot repay your home loan.
Settling in houses that large families will not want: One of the big advantages of singles over couples is that they may be suitable for a two-bedroom home or other size setup that may not be big enough for a family. So let couples engage in bidding wars over typical three-bedroom, two-bathroom homes while you focus on smaller, affordable options.
“Or focus on a tenant-occupied house, which other people may ignore,” Dorfman adds.
Team up with your friends or family to buy a house: Do you have a close friend or family member you would like to live with? In this case, it may make sense to buy a property together as co-borrowers.
“You can come in with a friend and invest in a house together,” says Khari Washingtonbroker and owner of 1st United Realty & Mortgage.
As with sureties, however, you’ll want to make sure your relationship is solid.
“Keep in mind that while a guarantor has no claim to your title, the co-borrower holds joint title with you,” says Auerswald. “It could be problematic if your relationship goes downhill.”
Prepare your deposit: Another way to strengthen your position with lenders is to make a larger down payment. The more money you invest, the more likely you are to qualify for a lower interest rate because the lender sees that you are ready and committed to becoming a homeowner.
“Pledge to save 20% of your monthly salary and take a substantial down payment to lower your loan-to-value ratio, qualifying you for better mortgage products,” advises Auerswald. Similarly, “single homebuyers who might not qualify for a loan on their own may possibly turn to their family for down payment assistance.”
Don’t up the ante: Even once you know your ideal price range, in a market where bidding wars are common, you may want to aim even lower.
“Buyers of single-family homes really need to know their budget and even buy at the lower end of their price range,” says Gelios. “It allows them to handle an unforeseen emergency.”
You definitely want to have a little financial cushion for home repairs and maintenance costs.
Being flexible: Single or not, you can make your offer stand out by finding out what the seller really needs.
“In this market, cash isn’t always king, even if it’s the highest bid,” says Chris Cerron, a real estate agent and single home buyer and seller in Las Vegas. “I just accepted an offer on my other house because the buyer structured it to my needs.”
Things like being ready to rent to sellers while they think about their next move can make a difference.