Online home loan lenders have removed many of the old barriers to getting home loans for women. A women’s home loan application should not be any different than a man’s home loan application.
Online mortgage lenders have made it easier for divorced, and otherwise single women, and other minorities to obtain home loans. Buying a home is a lot like starting a new relationship – there is more to it than what can be seen.
The big elephant in the room is: money, and your relationship to it. With enough income any home buying problem can be solved. Your credit history says a lot about your relationship to money, which is why it is such an important part of the home buying process.
How To Get Home Loans for Women: Step One
Getting home loans for women and other minorities is a process of putting together a financial jigsaw puzzle.
First, get a copy of your credit report and remove anything that isn’t correct. When I applied for my first mortgage, my credit report was filled with a dozen credit cards that I didn’t own. Getting them removed took some time, but my credit score jumped from “poor” to “good”. Which not only allowed me to buy a home, but to get a much better mortgage interest rate. The lower the home loan interest rate and the overall Annual Percentage Rate (APR), the lower the loan payments will be.
The Annual Percentage Rate (APR) includes the loan’s interest rate plus any fees that are required to obtain the mortgage. So, it is the APR rate that is used to compare one home loan from another.
How Do I Improve My Credit Score?
After removing anything on the credit report that isn’t accurate, do this to improve your credit history:
- Improve payment history. Set up automatic bill payments to insure paying on time. Payment history equals 35% of a borrower’s FICO credit score.
Pro Credit Tip: Make your bill payments two days before the payment is due. This will lower the amount of credit being used (credit utilization) when the new credit report is created. The end result is a higher credit score.
- Reduce Credit Utilization (See pro credit tip above). For example: If you have a credit card with a $4,000 credit limit. Don’t use more than 29% of that amount ($1,160). If a borrower uses 30% or more of their credit limit that tells the lender that the borrower may have trouble paying their current bills. Which makes it riskier for a lender to lend more money. So, the lender will charge a higher interest rate, or not lend any money at all.
- Do Not Apply for or Borrow More Money: This especially important after having applied for a women’s home loan. Using more of your current credit or applying for more loans will lower the borrower’s credit score. Which will result in a higher mortgage interest rate. Also, the borrower’s Debt-To-Income Ratio (DTI) will increase. Which may prevent the borrower from getting approved for a home loan.
- Reduce The Debt-To-Income Ratio (DTI Ratio). This is a way of comparing the borrower’s income and debts. There are two kinds of DTI Ratios.
The first one is known as the “Front End Ratio”. Which is the amount paid per month for the mortgage payment, property taxes and insurance as a percentage of monthly income. The mortgage lender will determine this prior to granting home loans for women. This is part of the loan “prequalifying” and “preapproval” loan evaluation.
The “back end” DTI ratio is even more important to the mortgage lender. It includes all of the borrower’s monthly debt payments. So, that includes student loans, credit cards, car loans, and every other debt. Generally, (there are exceptions) this can’t be more than 43% of the borrower’s monthly income. However, many lenders will not lend home loans for women when the DTI ratio is above 36%
Home Loan Down Payment and Closing Costs
Next, cash is needed for a down payment and for closing costs. Different mortgage programs require different amounts for down payments. Typically, from 3.5% to 20% of the purchase price of the home. Closing costs vary from state to state and when including real estate tax escrows can range from $2,500 to $29,000. Without including real estate taxes, typical closing costs are from $2,000 to $6,000.
Each state has local government sponsored programs for first time home buyers. These programs are for lower income borrowers and possibly even home loans for women with bad credit.
Some programs help borrowers to understand the home buying process, and provide guidance on how to maintain a home once purchased.
Other government programs and charities will provide down payment assistance. Oftentimes, the home buyer must live in the home for a number of years or repay the amount of cash assistance received.
Seller Paid Closing Costs
This is known as “seller concessions” and the amount is regulated by the type of loan. For FHA and USDA loans it is 6% of the sales price. It is 4% for VA home loans. For conventional loans that conform to Fannie Mae and Freddie Mac standards it is 3% to 9% depending upon how much down payment is made.
In a “buyer’s market” a seller may be willing to pay some of the buyer’s closing costs in order to sell the house. That is what happened when I bought my second home. The seller really needed to sell fast and I was the only interested buyer.
However, in a “normal real estate market” or in a “seller’s market” the seller isn’t going to give you money to buy their house. So, what happens then? Essentially what happens is that these costs are included into the mortgage amount even though the seller paid those costs at the closing. Which means that the house must appraise for that higher amount. Often times the house doesn’t appraise for the higher amount and the deal falls apart.
How Much Can I Afford to Pay on A Mortgage?
Oftentimes, a borrower can be pre-approved and pre-qualified for a larger monthly mortgage payment than they can realistically afford. Only you can determine what amount of mortgage payment is easy to manage.
Home loans for single women can take up all of their available income, which puts them at a greater risk of defaulting on the loan.
My second home was only 850 square feet, which was more than enough for my needs at that time. However, my income and credit score qualified me for a much larger house. Instead, I chose to buy a new car and put money into a retirement account.
Also, be sure to retain enough monthly income for home repairs and maintenance. Now that you have bought a new home you might need a lawn mower and a place to store it. Also, heating and cooling systems, and appliances may need repairs.
Did the house come with a clothes washer and dryer or do you need to buy them?
Getting a women’s home loan requires thinking about more than just how much the mortgage payment is.
Should I Buy a Duplex to Help Pay the Mortgage?
Not for most people. My first house was a duplex that I didn’t live in. The rental income was just enough to pay the mortgage. When I had to evict a tenant, I had lawyer and court fees to pay. Plus, repairs to be able to rent the unit to a new tenant. So, I didn’t have that rental income for three months. That money came out of my pocket.
Rental property income will help a borrower to qualify for a bigger mortgage or to live in a better neighborhood. However, it requires taking a bigger financial risk. For some people it is their best choice, but it usually isn’t a good choice for a first-time home buyer.
Prequalification vs Preapproval
A preapproval letter from a lender is oftentimes required by a real estate agent before they will show any houses to a client. Otherwise, the borrower and the Realtor may be wasting their time.
That’s because sellers want to be sure the buyer can actually close on the purchase. Sellers will always choose an offer from a preapproved buyer over a prequalified buyer.
Prequalification is where the lender checks the information provided in the loan application. It is a way to determine if the borrower would probably qualify for a home loan. The loan amount is just an estimate, and there is no assurance that the borrower will even get a loan.
Preapproval is where the lender requires documents that verify the borrower’s income, savings, other loans and debts, and credit history. Then an actual loan amount that the lender will provide to the borrower is determined. This is a statement from the lender that they will lend up to the stated dollar amount.
Let me remind you not to take on any more debt after being preapproved for a women’s home loan.
Home Loans for Women: Get Prequalified for Free
Before you can get preapproved for a women’s home loan you first must get prequalified. To use the free prequalification service that I recommend just click here to get started.