All the Single Ladies…
Despite the pay gap, women are increasingly becoming financial powerhouses. Case in point: they now control 51 percent of American wealth, totaling some $14 trillion in assets. One of the ways they’re using those assets to their advantage? Homebuying.
According to the latest data from Ellie Mae, women are the primary borrowers on 32 percent of all closed mortgage loans. When women take the lead on a home loan, they’re single 61 percent of the time. Buying a home is tough enough with a spouse or a significant other, but it can be even more challenging when flying solo. For those women who are first-time homebuyers, here are some of the most important things need to keep in mind.
1. Affordability Is about More than Purchase Price
One common pitfall many homebuyers often fall into is misjudging how much they can really afford to spend. For single women, that can be especially problematic because they rely on just one income, and it’s often lower than what men earn.
The Bureau of Labor Statistics puts the median weekly income for women who are working in full-time management or professional positions at $1,019. That adds up to $52,988 annually, or $4,416 a month. By comparison, men make a median annual salary of $73,060.
Assuming you have an annual salary of $52,988, zero debt, and $40,000 for a down payment, you could theoretically afford a $245,900 home if you got a 30-year loan at a rate of 3.39 percent, according to Realtor.com’s home affordability calculator. Your payments would come to approximately $1,224, including the principal and interest, taxes, homeowners’ insurance, and private mortgage insurance, leaving you with $3,192 a month to pay the rest of your bills, cover everyday expenses, and save.
That seems like plenty of money, but it can go relatively quickly if home ownership results in higher utility costs, or you’re spending more on transportation because you have a longer commute to work. You also have to factor in the added expense of things like maintenance and home repairs, which could put even more of a strain on your financial resources.
In that scenario, something like saving for retirement could easily get pushed to the backburner. Considering that women are more likely than men to retire poor, socking away money for retirement isn’t something you can afford to skip out on. Before you make a move on a home, your first priority should be making sure that it doesn’t come at the expense of your other financial goals.
2. Your Down Payment Matters
Putting 20 percent down on a home is the generally accepted industry standard, but it is possible to buy a home with less cash out of pocket. An FHA loan, for instance, allows you to put down as little as 3.5 percent.
That’s tempting for a single woman who’s trying to keep short-term costs as low as possible, but it comes at a price. Taking on an FHA loan or a conventional loan with a down payment of less than 20 percent means paying private mortgage insurance (PMI), which drives up the cost of homebuying.
Let’s say you’ve got your eye on a $250,000 home, and you want to get a 30-year, fixed-rate loan at a rate of 3.39 percent. If you put 20 percent down, that eliminates the private mortgage insurance requirement and sets your payment at $1,139, which breaks down to $886 for the principal and interest, $63 for homeowners’ insurance, and $190 for property taxes.
On the other hand, if you only put 10 percent down, that adds $117 a month for private mortgage insurance. The principal and interest part of your payment increases to $997, so you’re now looking at a payment of $1,367 a month, including the PMI, property taxes, and homeowners insurance.
If you’re a single woman who’s pulling in a modest salary, a difference of more than $200 a month in the mortgage payment can have a significant impact on your bottom line. Saving up a larger down payment may mean delaying your home purchase, but your wallet may thank you if it allows you to shrink your monthly housing costs.
3. A Safety Net Is Vital
When you’re single, the burden of making sure you’re financially protected sits squarely on your shoulders. Buying a home adds a new dimension to that responsibility.
Single women need to be ready for the worst on multiple fronts. Buying a home warranty, for instance, can help with the cost of making certain repairs or replacing appliances during the first few years of home ownership. Disability insurance allows you to keep up with your mortgage payments if you get sidelined by an illness or injury. Life insurance can wipe out your mortgage debt altogether if you pass away.
Besides all that, single women should also have a sizable emergency fund. If you don’t have a home warranty or it’s run out, having money on hand to deal with things like busted pipes or a leaky roof means you don’t have to resort to putting them on credit. An emergency fund also comes in handy if you get laid off and it takes a few months to land another job.
4. Knowledge Is Power
Nearly half of mortgage buyers don’t take the time to compare rates when getting a mortgage, and that can be a serious mistake for single women. A difference of even 0.25 percent in your mortgage rate can translate to thousands of dollars more you’ll spend on interest over the life of the loan. Shopping around for the best mortgage rates is a must.
Taking on an expensive loan or coming to the closing table with a tiny down payment can influence your financial outlook for years to come.
5. Good Fences Make Good Neighbors… or Do They?
Moving somewhere means that you’re committing yourself to being neighbors with the folks who already live there. If you’re moving somewhere and still want to maintain an active dating life close to home, check out the city demographics to make sure that there are other single, like-minded people in your neighborhood.
Another thing to check is your immediate neighboring properties: are the homes looking cared for? If your neighbor hasn’t bothered to replace a rotting fence or paint the house in a long time, chances are that this neighbor isn’t going to fix something that might be affecting your property (like drainage, or that rotting property line fence).
Ready to explore your options? Get in touch with a Sindeo mortgage advisor today!