Single mothers who are interested in availing home loans, may find it difficult to contend with the stringent requirements for procuring conforming mortgages. The lending standards for conventional mortgages have been revamped by Freddie Mac and Fannie Mae since they were placed under the conservatorship of the Federal Housing Finance Agency (FHFA) in September 2008. Today, single mothers who are interested in availing conforming loans need to have good credit scores, preferably in the 700s, for procuring the same at a reasonable rate of interest.
Provision of Home Loans for Single Mothers
Manufactured Home Loans
The FHA (Federal Housing Administration) insures Title I loans that can be used to purchase or refinance a manufactured home, to purchase a developed lot on which the borrower intends to place the manufactured home, or to purchase both the lot and the manufactured home. Title I loans are not Federal Grants or government home loans for single mothers. The interest on these loans is fixed and is negotiated between the mortgage lender and the borrower.
It is important to understand that FHA does not provide these loans but only insures the loans disbursed by FHA approved lenders. This insurance guarantees the lender of recovering the dues in the event of the borrower defaulting on the loan, thus reducing the rate of interest charged by the lender.
The maximum term of a Title I loan is 20 years if one decides to buy just the manufactured home or opts to buy a single-section manufactured home and the lot. The duration of the loan, availed to buy a multi-section manufactured home and a lot, is 25 years and that for the lot purchase alone is 15 years. Although, the applicant’s credit history and income are important considerations, the applicant is not rejected unless she has an adverse credit history. Thus, manufactured home loans are not a bad idea for single moms.
Good Neighbor Next Door Mortgages
Single mothers who are working as emergency medical technicians, pre-kindergarten through 12th grade teachers, law-enforcement officers or firefighters, are eligible for ‘Good Neighbor Next Door Mortgages’. Women in the above mentioned professions can apply for an FHA insured mortgage that requires a down payment of just USD 100 to purchase a HUD home listed under the ‘Good Neighbor Next Door Sales Program’. The best part about these homes is that, they can be purchased at 50 percent off listed price. The low price of the home coupled with an FHA insured mortgage guarantees women of a great deal on the home.
One can purchase a home listed under the ‘Good Neighbor Next Door Sales Program’ even if one does not want to avail an FHA insured mortgage. However, the benefits of the FHA insured loan make it a worthwhile proposition. The homeowner is required to live in the house for 36 months from the date of purchase and sign a second mortgage and a note for the discount. No interest or payments are charged on the second mortgage provided the homeowner occupies the home for a period of 3 years from the date of purchase.
FHA Insured Mortgages
The discussion on home loans for single moms is incomplete without the mention of FHA insured loans. The borrower is required to make a down payment of just 3.5 percent of the purchase price of the house. Despite the low down payment requirement, the borrower does not have to purchase private mortgage insurance (PMI). This is because FHA insures the loan and charges an upfront premium of 1.75 percent for purchase money mortgages (type of seller financing) and full-credit qualifying refinances.
The remaining premium is paid along with the monthly mortgage payments till such time the loan-to-value of the mortgage reaches 78 percent of the initial sales price or the appraised value of the home, whichever is less. The credit requirements are less stringent and even borrowers who do not have the amount required for down payment, can use the anticipated USD 8,000 tax credit (as a security) and procure a short-term loan that is secured by a second lien on the home.
Hopefully, the above article will be of use to women who are interested in procuring home loans for single mothers.