Buying Single - Is it for You?
There was a time when buying a home as a single person was nearly unheard of, but that trend has been changing. In 2018, single home-owners made up 38.4% of owner-occupied housing stock - a 118 year high according to an analysis of Census Bureau data. Additionally, according to the National Association of Realtors, single individuals made up 25% of home sales in 2019.
Zero-in on millennials, and the data is even more eye-popping. "At a time when a lot of young adults are postponing marriage, the number of Americans buying a house on a single income is substantial," says Investopedia. Ellie Mae says that "as many as 47% of millennial home buyers last year were unmarried."
If you're considering buying while single, here are a couple things to think about.
Are you prepared for an emergency?
According to experts, qualifying for a mortgage as a single person shouldn't be any more difficult than it would be if you were married, as long as you have the credit, income, and employment history necessary to get approved for your loan. The main concern with home ownership on a single income is that job loss or other financial hardship can have a bigger impact and could put your home at risk. This risk makes having a substantial emergency fund even more crucial. The size of your emergency fund will depend on your lifestyle, but having three to six months' worth of expenses on hand is preferable.
Look to your friends
Just because you're single doesn't mean you have to live alone—or even buy alone. "Many singles team up with partners or friends," says USA Today. According to a NAR survey, "Unmarried couples made up 9% of home purchases last year, up from 8% in 2018. 'Other' arrangements, such as roommates, comprised 3% of purchases in 2019, up from 2%. In some cases, both occupants own the home. In others, one owns while the other pays rent or contributes to household expenses.
"Mattress Money" and Mortgages
While it might not literally be stashed under your mattress, "mattress money" is a catchall term to describe money saved without a documented paper trail. The money could come from selling a car, a small inheritance, or an outright gift. One might assume that cash is cash, but when it comes to real estate transactions, it's important to understand that the way you save your money is nearly as important as having it in the first place.
One of the most important things lenders look at when evaluating a home loan application is how much money is available for the transaction. You need to be able to prove you'll be able to cover the down payment, closing costs, and cash reserve requirement. This verification is done by reviewing recent copies of bank statements, and if your savings account is short by $5,000, you can't simply deposit your mattress money into your bank account right then to cover the gap.
Lenders must be able to verify the source of the money you're using for the transaction, as they're on the lookout for money laundering and illegal activity. If you've been saving cash at home and you plan to use those funds to buy real estate in the future, move the cash out of the vault (or mattress) and into your bank account ahead of time. This will let the funds "season," i.e., sit in your bank account for a couple months, and the lender will not question where the funds came from. While there's no universal guideline, funds generally should be "sourced and seasoned" for at least 60 days or two bank statement cycles.