3 Millennial Mortgage Misconceptions
Millennials are on the verge of surpassing Baby Boomers as the nation’s largest generation, and as such, this generation will play a pivotal role in both the economy and mortgage industry. Many millennials, however, avoid looking at buying a house because they are confused or overwhelmed by the process, especially when it comes to down payments and financing. Here are the top three misconceptions that keep them renting when they could be buying!
Saving for a Down Payment
While many young Americans have false notions about what it takes to buy a home, many of them haven’t been able to save a penny towards buying a house. According to Apartment List, 48% of millennial renters have no down payment savings and only 11% have saved $10,000 or more. Additionally, 72% of millennial renters who plan to purchase a home cite affordability as a reason that they are delaying home ownership, with 62% pinpointing a lack of down payment savings specifically.
Depending on their financial situation, some millennials may be able to afford home ownership. There are a variety of loan programs that cater to first-time home buyers, such as the FHA loan, which allows for down payments as little as 3.5%. Some conventional loans allow for down payments as low as 3%, and there are VA loans for veterans and military or USDA loans for buyers in rural areas that don’t require a down payment at all!
Understanding Their Credit Score
Credit scores have a large impact on both your ability to qualify for a loan, as well as what interest rate you’ll be eligible for. It’s a crucial factor when it comes to fiscal health, however not all millennials even know how to go about improving it, or what it even means! According to a Lend Edu study, only 17.23% of millennials knew that you could increase your credit score by decreasing credit utilization, with 43.69% believing that the way to increase your score is to increase credit utilization.
It’s never too early to start thinking about your credit score. The first step is to determine what your credit score is, which you can do by requesting it from annualcreditreport.com. It’s free to request once per year, and is the only site authorized by the Federal Trade Commission to provide free credit reports.
Dealing with Student Loan Debt
Many millennials assume that the amount of student loan debt they’re carrying means they won’t qualify for a mortgage, however that isn’t necessarily the case. Lenders calculate your debt-to-income ratio to determine your ability to make monthly payments on the new mortgage. Debts can include anything from credit card debt to car payments and — you guessed it — student loans. DTI is calculated by dividing your total monthly debts by your household’s gross income, which is income before taxes. Multiply this number by 100, which gives you get a percentage. This is your DTI and the lower the percentage, the better.
Thinking about becoming a home owner but need some guidance to find out if you are financially ready? Contact one of our loan officers today to learn more!
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