I have two children, I am a single working
mother and I make approximately $25,000 a year. I recently
moved out of an apartment that was costing me $850 a month.
I moved from one town to another after my divorce and this
is the first year I have lived on my own with my two children.
I barely make it.
I was told by friends that I could buy a house
with certain programs that are out there. Is this possible
with what I am making a year? I did make the decision to move
in with a family member so that I can save and fix my credit.
Will buying a home be possible with the amount of money I
make? What would the best steps be for me to go toward this
Congratulations on setting a goal to become
a homeowner and for already taking a step in that direction
by moving in with a family member to save money.
Your friends are right when they say that first-time
home-buyer programs are available for low-to-moderate income
families that make it possible to purchase a home with a salary
comparable to your own. You might start by contacting your
state's office of Housing and Urban Development, or contact
your city's housing department to determine what programs
are offered in your area.
But before we get to the matter of home buying,
let's first address the line in your letter regarding fixing
your credit. As someone who also lived through a divorce,
I can well imagine what your credit report looks like and
how much you may owe to creditors. But believe me, you can
overcome this, given some time and determination!
Before you begin your journey to homeownership,
you will need to work to clear up your credit. In other words,
you will need to pay any charged-off accounts, bring any late
accounts current and in general make all credit payments on
time from this time forward. Be especially careful of using
credit unnecessarily. You want to be in as good a shape as
possible when the time comes to look for a loan.
Next, I would advise you to take a hard look
at your monthly expenses and make sure you are living within
your means. Create a spending plan to help you map out how
you can make your $25,000 income stretch enough to cover regular
monthly expenses plus a new mortgage loan.
Most lending institutions require that your
mortgage payment not exceed 28 percent of your gross monthly
income. In your case that would mean your mortgage payment
could not exceed $583 a month. According to the calculator
at Bankrate.com, you should qualify for about $100,000 of
mortgage at 6 percent. Budget the rest of your salary to cover
the remainder of your monthly expenses. Include a small amount
in your spending plan to put aside for an emergency savings
fund. Even $5 a month will add up with time.
Finally, if you are not receiving child support
from your ex, make it a priority to change that. Your two
children need and deserve to be financially supported by both
their parents and the additional income will make it easier
to qualify for and meet a monthly mortgage payment.
In general, housing-assistance programs provide
first-time home buyers with down-payment assistance, low-cost
loans and housing education. Many programs offer grants or
discounted loans (if the owner stays in the home for more
than three to five years). In addition, first-time home-buyer
programs work with lenders that offer these low-cost loans
to be sure you fully understand the commitment you are making
by owning your own home.
Most programs will include an education component.
I encourage you to take full advantage of the education provided.
I used to teach these myself and I think they helped a lot
of people avoid a lot of mistakes! Don't rush the process.
As long as you and your family member can stand it, live there
and save those down-payment bucks! You are on the right track
and I know things will work out for you.
The Debt Adviser, Steve Bucci, is the president
of Consumer Credit Counseling Service of Southern New England.
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