Single parent? Tips on becoming a homeowner

In 2014, there were some 698,000 lone-parent families with children under 16 living in Canada. According to Statistics Canada, that’s up nine per cent from 1976. As of 2012, more than 27 per cent of all homes in Canada were occupied by lone-, or single-parent owners.

For anyone, buying a house can be one of the most daunting yet exciting times in their life. However, for some single parents, the process may seem insurmountable. Nicole Wells, vice-president at Home Equity Financing RBC, understands all too well the “extra level of stress” that comes from applying for a mortgage solo.

“I was a divorced mom with three young children when I applied,” says Wells.

Knowledge is power

If you’re a parent on your own thinking of buying a home, there are some things you can do to help improve your chances of securing a mortgage so your dream of homeownership can become reality.

To begin with, before you even begin looking for a new home, it’s important to figure out how much of a home you can afford to buy. To do this, you need to tally up all of your monthly household expenses and then add in the estimated new-home expenses (mortgage payments, property taxes, insurance, utilities, maintenance, and more). For single parents, that may include spousal and/or child support payments.

In Wells’ situation, since she was the one paying spousal support, she had to include her payments into her monthly debt expenses.

“Since it is a 100 per cent liability, it reduced the amount of money I could borrow,” she explains.

Conversely, any support payments (spousal and/or child) received are viewed as income, which – if combined with other employment income – can help increase the amount of mortgage you qualify for. “You must have been receiving these payments for at least six months and must be able to prove that the payments are scheduled to continue for at least the next three years,” says Wells.

“When applying for a mortgage as a single parent, the bank also factors in your credit score, the property itself and other considerations to arrive at how much of a mortgage you can afford,” adds Wells.

Understand the terminology

GROSS DEBT SERVICE RATIO
This takes into account mortgage principal + interest + taxes + interest divided by your household annual income. This quotient should NOT exceed 32 per cent of your gross household monthly income.

TOTAL DEBT SERVICE RATIO
This ratio tallies up housing expenses + credit card interest + car payments + loan expenses and divides it by your annual income. This one should NOT exceed 40 per cent of your gross household monthly income.

TIPS to help improve your chances of securing a mortgage

• TEST DRIVE A BUDGET:
  Knowing what you can afford is crucial. One of the biggest things you have to consider in this decision is your lifestyle. Don’t forget to factor in those unexpected expenses, like the heater breaks down and needs to be replaced or your car needs mechanical work. Then, try living within a budget for awhile to see if you can comfortably do it. “Also, add in your day-to-day expenses, like childcare (which isn’t calculated into your debt-to-income-ratio), sports and other activities your children take part in,” says Wells.
• GET PRE-APPROVED BEFORE YOU START SHOPPING AROUND:
  This is an important step in the process. You don’t want to start house-hunting and fall for a home you can’t afford.
• DOWNLOAD THE CMHC FREE WORKBOOK, HOMEBUYING STEP BY STEP
  Everything you need to buy a home in Canada. This is a great tool, with worksheets, calculators and checklists to help you navigate each step of the homebuying process.

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