The concept of “housing for one” is a trend we are seeing more and more in the mortgage industry as single Millenials from Generation Y begin entering the marketplace. Also trending for us mortgage originators is that as more couples from other generational groups divorce, leaving one member of the previous relationship to assume or refinance the house under their own name.
These homeowners have unique needs and need mortgages to reflect those singular differences.
So what kind of differences are we looking at?
Overall, Millenials are surprised at the cost of mortgages. Most are unfamiliar with the principles of down payments, insurance and closing costs. Unlike previous generations, Gen Y is comprised of more unmarried singles that are discovering how obtaining their first house isn’t an easy feat to attempt alone, as compared to the young married couples of previous generations.
Many singles from the Generation Y group are renting first or sharing housing with roommates while they sock away money for their down payments. They are purchasing more in cities and larger metropolitan areas versus the suburban areas that are more heavily populated by families.
As the size of both of the above statistical groups grow, the mortgage industry is searching for ways to better assist many of those who grapple with the unfavorable factor of trying to obtain or refinance a house in the name of a spouse that has been previously unemployed, self-employed or a stay-at-home parent.
One solution is to include a quitclaim deed as part of the divorce proceedings. This will allow the home to be shifted into the name of only one person; however, for this to be of use, both partners’ names must have been on the original deed.
Another option available for many couples is to request that a lien be placed on the house upon divorce. This type of lien, called an Owelty Lien Agreement, establishes it such that one spouse will own the house, but the other will still retain rights to any equity that was present in the house at the time of the divorce. This gives the spouse retaining the home and obligation to the loan the right to make improvements and to own the home, but the exiting spouse will get his or her share of the equity later upon the loan refinance or home sale. The lien protects the exiting spouse when the equity liquidation event (refinance or home sale) is delayed until the kids are grown, the market improves — whatever reason the couple has chosen to wait.
For those individuals involved with divorce who want to refinance or obtain their own conforming loan, keep in mind that alimony and child support cannot count toward qualifying income until there have been at least six months of steady payments. In addition, the lender must verify that the paying spouse is required by law to pay for at least three years after the loan closing.
Purchase Process for a Single Homebuyer
The home purchase process is just that, a process, and requires a substantial amount of time from a buyer, which is not always convenient with work obligations. This can often be easier for two people, as they can split tasks and responsibilities dependent on work schedules. When it is just one person working through the process alone, it may be a longer process or more stressful.
To help ease the process, it is recommended that single homebuyers do as much research and planning ahead of time as possible. This includes gathering documentation, reviewing and addressing any credit issues and ensuring an ample down payment amount is available prior to starting the home mortgage loan process.
One aspect of the process that is often overlooked by single homebuyers is the individual income to expenses concept. With joint loan applications, there is a combined income that is considered along with any accumulated expenses. With regard to income among married couples, 1+1 usually equals more than 2, as many expenses are joint and not duplicated; so the additional income carries a lot of weight when attempting to qualify.
Due to this factor, singles may end up with a less expensive home with fewer features and benefits than desired. And that could work for a housing-for-one mortgage.
Marcus McCue is Executive VP & CMO for Guardian Mortgage Company. The opinions expressed above are his own.