|Gary Foreman is a former Certified Financial Planner (CFP) who currently writes
about family finances and edits
The Dollar Stretcher website
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Dear Dollar Stretcher,
I am in the process of a divorce and want to keep the family home.
Are there any programs out there for single parents that would offer
a more favorable interest rate for re-financing?
Sarah's question brings good news and
bad news. The bad news is that she's not likely to find anyone to
offer her a lower rate because she's a single parent. The good news
is that there are some things that she can do to stay in her home.
Only a non-profit agency would
consider a special rate for borrowers like Sarah. Some do offer help
for needy home buyers. But I'm not aware of any that will help with
The reason that a regular mortgage
company doesn't have special rates is simple. Her ability to repay
the mortgage will be hurt by the divorce.
The mortgage company looks at a
borrower's total assets and liabilities. They also compare the
amount of income to monthly expenses.
Sarah's income will be going down.
Even if she was the major family breadwinner, she's probably going
to be taking a big income hit when her husband leaves.
Unfortunately, Sarah's expenses won't
be going down as much as her income. Sure, some things like auto
expenses could be cut in half. But it costs just as much to heat and
cool her home as it did before.
In fact, some expenses could go up.
The kids might still be covered under Dad's medical insurance at
work after the divorce. But Sarah will have to pay for her coverage
unless it's provided through her work.
What can Sarah do to be able to stay
in her home? The biggest hurdle is to have enough income to afford
it. Sarah needs to keep her housing expenses to less than 33% of her
take home pay. That includes utilities, maintenance, property taxes
and home repairs.
Some people in the mortgage industry
might be willing to lend her more. She'd be foolish to do that.
Remember that those who encourage her to spend more on housing won't
be scrounging to find the money for the mortgage every month.
Do the math. Suppose she spends 33%
of her income on her home. Add an additional 15% for auto and 15%
for food. At this point she's already consumed 63% of her take home
pay. That leaves 37% for things like child care, insurance,
clothing, medical/dental, entertainment and everything else. Trying
to take another 5 to 10% for housing will make her budget
So how can Sarah increase the odds of
success? Nothing flashy, but there are some simple things that she
First, Sarah will want to set up a
'rainy day' fund for unexpected expenses. The truth is that they can
be expected to happen. We just don't know exactly when they'll
occur. She should put some money aside every month that it doesn't
Not only will there be surprise
expenses, but Sarah might find that her income isn't secure. Even
court ordered child support and alimony is not guaranteed. If she
doubts that, she can check with a few divorced friends. Her Ex could
face a layoff. He's likely to pay his own rent before sending her a
She'll need to have a plan for
handling home maintenance and repairs. Routine maintenance can keep
a small problem from turning into a major expense. That's important
when money is tight.
Unless she has a very good income,
Sarah can expect to sacrifice other desires to provide extra dollars
for the house. She may find that she can keep the house if she's
willing to give up an annual vacation or drive an older car.
Increasing her income is another
option. One way to do that would be to share the house. It's
possible that she could find another single woman or mother that
could move in and help share expenses.
Finally, she should consider what it
would take to convince her that she shouldn't keep the house. Better
to make a thoughtful decision now rather than an emotional one later
when the pressure is on.
Sarah needs to be careful that she
doesn't slide into being 'house poor'. The first sign will be that
she's a little short each month. Then an unexpected bill for auto or
home repair pops up. If she uses a credit card she'll only delay the
consequences. Borrowing money isn't the answer, it's the beginning
of a serious problem.
Am I trying to scare Sarah? In a way,
yes. I don't know the circumstances of her marriage. But I can tell
her that every day questions come in from single parents who are
worn out from the continual struggle with bills.
Most families with children need two
incomes to make ends meet. Some are able to make it on a single
income if one parent stays home and uses their home management
skills to reduce expenses. But it's very hard for a single parent.
For instance, cooking from scratch isn't realistic if you're working
It's understandable that Sarah wants
to stay in her home. And, naturally I'd like to see her have the
best for her family. But she'll need to be very careful to make
sure that she makes an intelligent decision and doesn't let a house
drag her family down into financial quicksand.