Married couples still make up the bulk of U.S. home buyers. Yet single buyers make up a good portion, too. Some are going solo on account of divorce or a loss of a former life partner. Some, happily independent, are making a commitment to a place for years into the future. And some just want to put apartment living in the rear-view mirror.
Solo buying can be thrilling and daunting at the same time. The first goal is confidence in the loan approval process. Some solo home shoppers wonder if they’re ever going to succeed in bidding, given the buying power of dual-income couples looking in the same area. For many, the burning question is: What if I’m mentally ready to buy, but maybe not making the kind of money today’s mortgage lenders expect?
Sole Income Paradox
The paradox here is that if you don’t push through the process to buy a house, townhome or condo, you may be missing the best way to build wealth. Buying and carefully maintaining a modest property in an undervalued area may be the best combination to achieve home value appreciation.
If you’re going solo, you do have a significant — though unspoken — advantage. You aren’t at risk of divorcing and suddenly having to sell in a difficult market. You’ll be able to wait out the dips and downturns, and sell when it’s most advantageous. If you have a fixed-rate mortgage, the cost of holding your house while it appreciates should be predictable.
The Single Woman and Home Buying
Single women are a major force in the real estate market, making up the majority of solo home hunters. But the gender pay gap presents hurdles for many single women when they seek mortgage approvals. How do they do it?
For some, outside-the-box financing strategies, including assistance with down payments and closing costs, can make a purchase happen. Or they might pool their resources. More on that option in a moment.
Pro tip: Looking as early as possible is extremely helpful in this market. If you can take the time to make dozens of low offers, chances are higher that you’ll find a seller who has a purchase agreement fall apart — because other interested home shoppers couldn’t obtain final mortgage approvals or couldn’t sell their current properties.
Sole Ownership and Estate Planning
When the deed names just one person, no vesting decisions are necessary. The real estate is titled in the name of the sole owner, without the interest automatically transferring to any other owner after death. With sole ownership, when the one homeowner passes on, the home title can be conveyed, by a will, to anyone the homeowner chooses.
Other options are available if avoiding probate is your goal; speak with a local attorney who focuses on wills, estate and trusts to learn more.
When Single People Buy as Co-Owners
Two or more single buyers may opt to pool their resources, buy as co-owners, and vest as tenants in common. This way they, too, may bequeath their interests to designated beneficiaries.
This kind of vesting offers flexibility in dividing up the interests in the asset, too. When the co-buyers decide to vest as tenants in common, they may designate different percentages of interest on the title, thus investing in different sized shares of the whole property. This way, a person with a stronger credit profile help place another person in a position to buy. Each co-owner may chip in for different portions of the maintenance needs, too.
Vesting has a lot to do with passing property along. Wherever there are two or more co-owners living in a house together, no matter their ages, it’s important to consider how things will play out if one of the co-owners passes away while the group still shares the house. A beneficiary named in one co-owner’s will would become a tenant in common with the other owners, and they might not even know each other.
Alternatively, the owners can own the house as joint tenants with rights of survivorship. They’d need to be comfortable having equal shares. These interests automatically bypass probate. The surviving co-owner(s) would automatically absorb the deceased owner’s interest (but should still go through the process of changing the deed).
How to Succeed, What to Watch: Top 10 Tips for the Single Home Buyer
Every situation is unique, and Deeds.com cannot give case-specific real estate law advice. What we can offer are ten general rules for protecting yourself from risk when you buy a home on your own.
Tip 1. Find a great agent.
Get this one right, and all the rest should fall into place nicely. Ask friends who have purchased homes in the area to recommend an agent who will work hard for you and share tips only a seasoned, local expert can give.
Tip 2. Try to save 20% for a down payment.
This is going to take some serious saving. Consider that you’ll need $34,000 to put 20% down on a $170,000 condo. But putting 20% down will put you in strong starting position for dealing with your mortgage debt — and it’ll spare you the costs of private mortgage insurance, which can take the joy out of a low interest rate. And if property values drop, you’ve already made a good start on equity building, so you’ll be in a better position to stay above water.
Tip 3. Anticipate all key costs.
Get an estimate on your closing costs. You’ll also need to pay for homeowner’s insurance, a home appraisal and inspection, the title search, local taxes, new furnishings, and the cost of your move. Then there’s the upkeep and home maintenance costs. If you’re struggling to come up with the funds to cover it all, seriously consider finding a co-buyer or saving up more before making your move.
Tip 4. Compare lender fees and interest rates.
Ask your mortgage specialist to look for more than one lender’s quote and fees. Compare mortgage rates from two or three lenders if you can, or more. Seemingly small differences add up to a lot of money over time.
Tip 5. Use credit lines strategically.
Ask the mortgage expert how to best improve your credit when you begin the application process. Getting a new card or using credit to make significant purchases will impact your credit report and possibly throw your loan approval process out of whack. Avoid applying for new lines of credit — unless your mortgage specialist says you need to expand your use of credit. Major cards offer significant strength to a credit profile. Store cards, not so much.
Tip 6. Have your pre-approval ready when you go home shopping.
In today’s market, it’s important to show sellers you’re ready to get your mortgage and move quickly when they are. Try to shop for a home that won’t max out your approval amount. That puts you in good shape after you move in and an appliance breaks. (The seller might offer to buy you a home warranty; that’s nice, but it’s likely chock full of limitations.)
Tip 7. Invest in a homeowner’s insurance policy.
You have to pay for title insurance, but that covers the lender’s risk. With a homeowner’s policy, you guard your own interest against unexpected title defects that the professional title search could be missing.
Tip 8. Be an active participant in your new home’s inspection.
Before coming to a final agreement and the closing table, you’ll have a home inspection done. Typically, the current owner leaves the home so you and your agent may speak freely with the inspector. Be sure the inspector will have unfettered access. After the report comes back, your agent will help you negotiate with the seller for appropriate price discounts or fixes for any significant issues.
Tip 9. Find a home that’s a good investment.
A good strategy is to seek out a home in a popular location, at an attractive price. And you don’t need to be a parent to care about the school district’s reputation. It is a major factor in home value.
Tip 10. Find a home you’ll enjoy.
What’s important to you: walkability and local parks? A train station? A farmer’s market? A place that’s tucked away from highway noise or flight paths? A south-facing patio? Hardwood floors? Look for the characteristics — inside and out — that will make your home enjoyable to live in for a period of years.
Embrace the Journey
It’s a good feeling to achieve homeownership — for sole buyers as well as couples. And it’s typically a good financial decision.
Paying off a fixed-rate mortgage is a stable expense, and in return you build up equity in a valuable asset. With a bit of luck and continued focus, in five to ten years you’ll have earned the down payment for your next home with this one. If you ever want to leave it, that is! And don’t forget to give that great real estate agent a stellar review!
Photo credits: Doran Erickson and Jordan Bauer, via Unsplash