Navigating the real estate market can be a daunting prospect, particularly if you’re flying solo and forced to tackle all the big decisions on your own. But for single parents entering (or re-entering) the real estate market, there can be additional obstacles to overcome. Whether you’re reinventing your life as a single parent after a divorce, or are one of the growing numbers of women and men who have decided to take on parenthood alone, here are some powerful strategies for qualifying for a mortgage as a single parent.
Take Control of Your Money
Regaining your footing and rebuilding your life after a divorce can be a costly endeavour both emotionally and financially; particularly when there are children to take care of. As incomes are halved, budgets strained, and financial affairs put to the test, a divorce can seriously affect what type of mortgage you are eligible for. Once you’re separated or divorced, most lenders will ask for a separation agreement that outlines what is payable as a liability (this includes monthly child support or alimony payments). Although this does not show up on the credit bureau, it will definitely be taken into account for debt ratios and lenders will include this in their calculations. If you are the spouse making the payments, this can make it more challenging to get back into the market.
If this scenario sounds familiar, the single most empowering thing you can do is take control of your money and document every incoming and outgoing expense. If there is debt, consolidating onto a line of credit with a lower monthly interest rate can help to free up a little money you can put towards a mortgage. If you have already been rejected by the big banks, going through a mortgage broker is probably your best bet. With access to dozens of different lenders including B lenders and private lenders, they are more likely to find someone willing to work with your situation.
Devise a Plan
If you still own a home with your ex and wish to keep it, but can’t afford the payments, there is still hope. Financial counselling from your bank or a certified financial planner like Money Coaches Canada, who have a number of people specializing in various areas, can help you devise a plan. A feasible financial strategy that’s been used successfully in the past can be to increase your mortgage, buy out the other parent or spouse, and pay their half of the house equity. If you’ve moved out already and are looking for a new home, it is crucial to continue paying the previous mortgage until your name is removed to avoid bad credit reports if your former spouse misses a payment.
Once you’ve carefully reviewed your credit history and have a clear idea of remaining liabilities (including credit cards, student loans, and car payments) you can look into whether your mortgage is considered conventional. If so, it may be possible to increase the amortization to 30 years in order to qualify the deal. This can be a solid short-term plan while financially getting back on your feet. Term insurance such as life or disability insurance can also act as a safety net for single parents.
Establish Your Own Credit
In the past, women in particular have been guilty of not establishing their own individual financial history and credit. If you’ve been sharing your spouse’s credit cards or all the household expenses were in their name, the first step is to slowly build your own financial self. Without this, your income tax, family benefits, and just about anything else tied to your credit history and rating can be negatively impacted. Working with your bank to slowly build your own credit history, whether it be with a line of credit or a credit card of your own, will go a long way once it’s time to talk mortgages.
Although entering a mortgage alone while simultaneously caring for children can be a scary proposition, these steps will help you to put your best foot forward when looking for a home of your own.