Monday, July 17, 2017

Single Parent Home Buying Guide: Part 1: Should You Buy A Home?

by Michelle Lerner 

When you’re a single parent, it can seem as though the stakes are higher in just about every decision you make, or action you take.


You may have all the family responsibility and little help with the most important issues.

This can make a home-buying effort – a huge project by most people’s standards – feel downright Olympic.

The Single Parent Home Buying Guide acknowledges the special difficulties you may face as a single parent, and helps with your particular challenges.

This includes the decision to buy or rent, minimizing your costs, qualifying for your home loan, and how the entire process works, from start to finish.

Our goal is helping you achieve a successful housing experience for you and your family.

Part 1: Should You Buy A Home?

Single Parent Home Buying Involves Your Head And Your Heart

When you’re responsible for your child as well as yourself, your choice of whether to rent or buy a home is not just monetary.

Buying a home as a single parent is also an emotional decision that influences your child’s future.

Before you decide whether it’s time to become a homeowner, make sure you understand the pros and cons of your choice.

Doing The Math

According to one national real estate listing site, it’s 37.7 percent cheaper to buy a home than rent, nationwide.

However, that number varies with local market conditions. Rents have been rising in many cities across the country, and mortgage rates are still very low, which can make buying cheaper.

A mortgage calculator can estimate your monthly payments for a comparison. Or you can get really involved and consider home appreciation, average rental increases, and tax benefits.

The California Department of Veterans Affairs has a pretty nice rent vs buy calculator that's fairly easy to use, and doesn't have a bias that one from a real estate firm might.

Advantages Of Buying

Once you’ve got a cost estimate, it’s time to consider the advantages and disadvantages of buying a home as a single parent. Advantages include:

Building home equity (wealth)

According to recent research by the Joint Center for Housing Studies at Harvard University, homeownership continues to be a top method for building wealth -- even after the housing crisis.

As you pay down the balance on your home loan, and as (hopefully) your home appreciates in value, you are building equity and heading toward owning your home outright.

While there’s obviously some risk in investing in property, renting provides zero percent return on your money. According to The New York Times, the median net worth of homeowners in 2013 was $195,400, while that of renters was $5,400.

This 2012 graph from the Federal Reserve backs up the Harvard study with almost identical numbers.

Paying down your mortgage balance and piling up home equity is what the experts call "forced savings," and is the best way for low- to moderate-income citizens to acquire wealth.

Lowering your tax bill

In addition to the long-term ability to build home equity, an annual benefit of homeownership comes in the form of tax deductions from the federal government and most state governments.

If you itemize your deductions, you also reduce your taxable income by the amount paid for your property taxes, mortgage interest, and often mortgage insurance payments.

If you don't itemize, or you're in a low tax bracket, you may still benefit with Mortgage Credit Certificates (MCCs), which return a certain percentage of your mortgage interest back to you. Speak to a tax pro before applying for a home loan in this case.

Freedom to please yourself

One of the most appealing aspects of homeownership is the ability to modify your home to suit your own tastes.

Renters can’t make significant changes to their landlord’s property, and even if they can, a home improvement project benefits the landlord, not the renter.

As a homeowner, you can change everything inside your home from the floors to the ceiling. You can (usually) have the pets you want, too.

Become part of a community

While it’s harder to put a dollar value on the benefits of becoming a long-term resident in a community, putting down roots can provide stability for you and your child.

Of course, some renters stay in one place for years, but you’re more likely to stay seven to ten years or more when you own a home and are building equity.

Pick your school district


When you’re raising a child, the local school is a big deal.

Owning a home provides you and your child with greater certainty about the school district and the chance to build long-term friendships with other children and parents.

Stabilize your housing costs

While some housing costs, like taxes and insurance, can change over time, if you have a fixed-rate mortgage, you’ll know exactly how much your principal and interest will be will be for the entire loan term.

As a renter, you are at the mercy of a landlord who could raise your rent every year, or perhaps make you move when you don’t want to.

In addition, when you have individual electricity, gas and water bills, you control your usage and costs.

Advantages Of Renting

While there are clearly benefits to buying a home, renting has some advantages that you should consider before you make a final decision to become a homeowner as a single parent.

Investment risk

While real estate is generally considered a good investment, there's no guaranteed profit. The value of your home depends on forces that you can’t control, like the job market, the supply of houses and zoning changes.

You can improve the worth of your home by taking care of it, and can increase your equity by paying down the mortgage balance, but if your home drops in value, you could lose money when you need to sell.

Maintenance

Renters benefit from the fact that the landlord is responsible for maintenance and repairs – both the cost and the hassle of hiring someone to take care of the property.

Buyers sometimes forget to budget for the inevitable cost of home repairs.

Flexibility to relocate

One of the biggest reasons to continue renting is the possibility that you may want to change jobs or transfer to a new location.

Or you may want to escape some awful new neighbors or decide you hate your commute.

Renters can more easily end a lease, while buyers need to sell their home or rent it out and become landlords themselves.

Fewer financial obligations

Of course, renters must pay rent, renter’s insurance and sometimes utility bills.

However, homeowners pay mortgage principal and interest, property taxes, homeowner’s insurance and utilities. There may also be homeowner’s association (HOA) fees and mortgage insurance.

In addition, single parent homeowners should budget about one percent of the property value each year for maintenance and repairs, or purchase a home warranty.

Buying a home comes with two sets of costs – the expenses of the purchase itself, and ongoing outlays you’ll pay every year.


The next section covers these costs.

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