How to Buy a House With a Single Income

Steps and strategies for single-income buyers

Reviewed by Somer AndersonFact checked by Betsy PetrickReviewed by Somer AndersonFact checked by Betsy Petrick

Getting a mortgage with a single income involves meeting various financial and credit requirements and can be a bit more challenging than buying a home with two incomes. But many people purchase a home this way.

In fact, between July 2022 and July 2023, 29% of homebuyers were single, with single females buying more often than single males (19% vs. 10%), according to the National Association of Realtors. The more you understand what the process entails and what mortgage lenders expect, the better your chances of getting approved. Here’s a step-by-step look at how to buy a house with a single income.

Key Takeaways

• You can buy a home with a single income, as many borrowers do.
• Single-income home buyers must meet the same home loan criteria and complete the same application process as dual-income households.
• Extra cash reserves can put single-income buyers in a more advantageous buying position.

How to Buy a House When You’re Single

Evaluate Your Credit Health

Lenders look at your credit report and credit score to determine your creditworthiness, so you should see where you stand before you start mortgage shopping. In general, you will need at least a 620 credit score to buy a home, but there are exceptions.

Figure Out a Down Payment Plan

When buying a home with one income, it’s important to consider how much you want to put down. You may want to put down less so you can leave yourself with some extra savings since you don’t have another income to rely on. 

However, putting down more money can make you a more desirable buyer and borrower and could help you avoid paying private mortgage insurance (if you can put down 20% or more), which adds to your monthly expenses.

Look carefully at various loan programs to review the down payment requirements and other attributes to see if one is better suited for you. For instance, an FHA loan requires just 3.5% down but has a mortgage insurance premium cost, while a VA loan (if you have a military affiliation) doesn’t require any money down and does not require mortgage insurance.

Also look into down payment assistance programs to see if you qualify, as they can provide eligible homebuyers with a few thousand dollars. Typically, such programs are for low-income home buyers.

Improve Your DTI

Lenders look at your debt-to-income ratio (DTI), which is your monthly obligations (debt) relative to your ability to pay (your income). This metric reveals how much of your income is needed to pay your monthly debt obligations, including rent, loans, and credit card bills.

For home buying, lenders typically like to see a DTI of 36% or less and usually no more than 43%. Calculate your DTI by adding up your monthly debt and dividing it by your gross monthly income. If you need to improve your DTI, pay down existing debt or increase your income.

Build Up Ample Emergency Cash Reserves

Everyone can benefit from an emergency fund. But when you rely on a single income, having an extra financial cushion can be especially important. If you lose your income, you will have money to pay for unexpected expenses without going into debt. You can help build these savings by automating deposits into a separate account, perhaps into a high-yield savings account. You can also put your money in a certificate of deposit (CD) account with a high yield.

Get Pre-Approved

Early in your home-buying journey, you should speak with a lender and fill out an application for pre-approval. This is the best way to understand your loan options and how much home you can afford based on your financial and credit situation. This process will also let you know if you need to make any changes to meet lender requirements.

Consider a Co-Signer

If your dream of buying a home is too far out of reach, consider asking someone to co-sign the mortgage with you, such as a parent or sibling, life partner, or trusted friend. If you’re going this route, be sure everyone understands their responsibilities and risks.

Warning

If you apply for a home loan with a co-signer and struggle to make loan payments on time, your co-signer will be responsible. If they do not make the payments, their credit will be impacted.

When Is It a Good Idea to Buy a House on a Single Income?

Consider your personal situation when deciding if it’s a good idea to buy a house with a single income. Everyone’s situation and risk tolerance are unique. Single homebuyers often do not have the same financial security net as dual-income households. They should weigh the pros and cons of taking on a mortgage on their own carefully.

It may be a good idea to buy a home on a single income when:

• You meet all the loan program criteria: If you run the numbers and get pre-approved and there are no major red flags, you can likely move forward.
• You have assets and cash reserves to help you through any loss of income: Though lenders don’t necessarily require you to have a specific amount of reserves, more of a nest egg can help make up for not having a backup income.
• Market conditions are favorable: During times of lower home prices or lower interest rates, you should take advantage of the lower cost rather than put your home-buying plans on hold.
• You have minimal debt: A lower DTI allows you to handle a mortgage payment and other housing costs.
• You have multiple income streams: Even if you are buying a home on your own, having multiple sources of income (such as side gigs, spousal/child support, Social Security payments, or rental income) can help ensure that you will be able to manage your bills if you lose your job.

Buying on your own may not be ideal if:

• Your employment situation may change: If you are a small business owner, freelancer, or in an industry prone to layoffs, you may be less likely to have ongoing, reliable income. In these cases, you’ll want to be sure you have sizable emergency savings you can draw from if needed. 
• Your credit isn’t great: Lower credit scores might mean higher borrowing costs. Plus, if you’ve had financial struggles, it’s important to deal with those issues before you make a significant financial commitment, like buying a home.
• You’re carrying a lot of other debt: If you’re teetering on the edge of the debt-to-income ratio requirement, you might not have as much margin for error in your budget. Homeowners need to have at least some flexibility to deal with maintenance costs or unexpected expenses that may arise.

Use a mortgage calculator to see how different factors like interest rate, home price, and down payment will impact your monthly payment and overall cost over the life of a mortgage. 

What You Need to Buy a House on a Single Income

Whether you buy a home on your own or with another person, you must meet the lender’s various requirements and share information and documentation. This may include:

• Meeting a minimum credit score: While this score requirement can vary depending on the loan program, generally, borrowers will need a score of 620 or more to get a home loan. 
• Down payment: Most mortgages require some down payment. 
• Steady employment income: Lenders want to know that you have a track record of steady work and are earning enough income to repay your loan.
• DTI: Your ability to pay your mortgage is impacted by how much other debt you have; specific DTI requirements vary by lender.
• Documentation: When you apply for a home loan, lenders will ask you to share a variety of documents, such as your photo ID, pay stubs, bank statements, and tax returns. 

Choosing a Mortgage When Buying a House on a Single Income 

One of the key decisions when buying a house is which mortgage to get. To figure that out, you can:

• Decide which type of loan may be best for you: Conventional loans and government-backed loans like FHA, VA, and USDA loans each have pros and cons, as well as different requirements. Work with a mortgage professional to go over the various options and which might be a fit for your financial situation. 
• Compare rates and fees: Once you decide on a mortgage type, you can shop lenders and request quotes to find the most competitive one. Look at interest rates and fees.
• Read customer service reviews and consumer complaints: In addition to cost, make sure that the lender you work with is reputable and that its application process and customer service methods align with your preferences (i.e., in-person vs. digital).

Applying for a Mortgage on a Single Income

The process for applying for a mortgage on a single income is no different if you’re single than if you applied with a partner. You’ll start by filling out an application online, by phone, or in person. You will have to share information and documentation related to your income, finances, and employment.

After you’re pre-approved, if you decide to move forward, you’ll go through the underwriting process, during which the lender will verify your income, employment, credit history, and property details.

The Bottom Line

Buying a home is a huge decision, but perhaps even more so for those buying on their own or with a single income. If you barely meet the minimum home loan requirements, it may be worth pausing your plans to improve your credit, save up more cash, or create extra income streams. These strategies can help you qualify for better home loan rates and terms and strengthen your financial position. Consider consulting a professional financial advisor for more guidance on your specific situation.

Frequently Asked Questions (FAQs)

What’s the Typical Down Payment for a House?

The typical down payment for a house was 8% of the home price for first-time home buyers and 19% for repeat buyers between July 2022 and July 2023. Many mortgage programs for first-time buyers require little to no down payment.

What’s the Maximum Amount I Can Get on a Single Mortgage?

The maximum conforming loan limit for one-unit properties in most U.S. counties is $766,550 for 2024. To borrow more, homebuyers either need to get a jumbo loan or supplement with a second loan.

What Is the Biggest Negative When Using Down Payment Assistance?

One potential negative of down payment assistance is that there may be a residency requirement. If you leave the home before the agreed-upon period of time, you may have to pay back the assistance program.

What Credit Score Do I Need to Qualify for a Mortgage?

You will need at least a 620 credit score to qualify for a mortgage. Some lenders may require a higher score, while certain loan programs like FHA may accept borrowers with lower scores.

Are Mortgage Rates Expected to Go Down?

Mortgage rates fluctuate up and down, so it is hard to predict what will happen at any given time. Mortgage rates fell below 7% in June 2024.

Read the original article on Investopedia.