Yes, you can: A millennial’s guide to home buying

Hank Bailey
Hank Bailey
Published on March 12, 2019

So how do you know when you’re ready to buy your first home? I’ve got an answer! It’s that moment when you just can’t stand writing one more check to your landlord so that he or she can pay their mortgage payment. That is the moment you are emotionally ready to buy your own home and start walking the path of a homeowner!

You could extend that list of “moments” to include the longing to get the kids a dog (or get yourself one), finally getting to use that paint color you’d love to use on your bedroom walls and that “budding” green thumb of yours itching to dig in its own backyard.

Now starts the sometimes long road to home ownership that homeowners before you have traveled along the way. Yep, others have paved the way for you, so if you follow their example, or maybe just the examples of those who’ve been successful, you’ll soon be mowing your own yard this Spring!

Cold cash

To close on a home costs money.  According to a recent apartmentlist.com survey, of the 80 percent of millennials who say they want to buy a home, only 68 percent of them have managed to save “less than $1,000” and a sad 44 percent of that group have nothing saved.

“Based on their current rate of monthly savings, our survey found that millennials in many of the nation’s large metros will need at least a decade to save enough money for a 20 percent down payment on a condo,” claim the site’s   Andrew Woo and Chris Salviati.

Well, while condos are harder to finance than townhomes or single family detached housing, buyers with a 10 percent down payment can shorten the wait in that same study to 5 years or less.

Luckily there are other options.  Those who choose an FHA or VA backed loan, a Fannie or Freddie or USDA loan, with an even lower down payment requirement (ranging from 0%-3.5%), have a range of opportunities!

The moral of the story is to go ahead and start saving now. Yes, you have student loan debt, and yes you need to pay rent and all of the other typical life expenses. Yet you’ve probably heard that paying yourself first should be your priority if you want to buy a home.  With FHA and pretty much most of these other programs that do require a down payment, you can even get a gift from a parent or relative to qualify too! Ask you lender or real estate agent about how this could work to your advantage!

Your debts

Unfortunately the term “millennial” is so often followed by “student loan debt,” in the media one would think it’s your generation’s middle name. While it’s true that student debt is at an all-time high, and many millennials are on the hook to repay five to six figures in student loans, it’s not the impediment to home ownership that some make it out to be.

The simplistic will advise you to boost your income and eliminate your debt when considering purchasing a home. While sage advice, it’s unrealistic to tell someone who longs to purchase a home to wait the aforementioned a decade (or longer).

There is also some relief for many with two recent announcements by Fannie Mae.

Changes over the past couple of years have helped. Lenders look at a borrower’s debt-to-income ratio (how much you owe vs. how much you earn, known as DTI) and in the recent past require that it be no higher than 36 percent. As of this year, however, that ratio can be as high as 50 percent, under certain circumstances.

Also, Fannie Mae announced a new policy specifically aimed at millennial homebuyers who have student loan debt. Basically, it excludes any debt that isn’t mortgage-related (auto loans, credit cards, and student loans) from the borrower’s ratios as long as these debts are paid by someone else. This could be a parent for example.

Curious about what your debt-to-income ratio might look like to a lender? Use the online calculator at nerdwallet.com.

If your DTI is too high, despite the new solutions from Fannie Mae, get busy continuing to try and increase your income as well as knocking down your debt. The College Investor offers a brilliant list of 10 “Easy” Ways to Earn $100 per Month and also see 8 Ways to Eliminate your Student Loan Debt.

Credit history

For some, it’s not necessarily student loan debt but a lousy credit history standing between you and homeownership? There’s good news on that front as well.

Experian, Equifax and TransUnion recently announced that most tax liens will no longer end up being reported on credit. Provided the information in the creditors’ report isn’t complete.

“Specifically, the data [submitted to the credit reporting agency] must include the person’s name, address, and either date of birth or Social Security number,” according to Diana Olick at cnbc.com.

Apparently, errors like this are common, impacting a large number of loan applicants. “With these hits to their credit removed, their scores could go up by as much as 20 points,” Olick claims.

Even if you don’t have judgments or liens on your credit record, it’s never a bad idea to order all three credit reports and scour over them to make sure there are no mistakes. The FTC claims that about 20% of American consumers have a mistake on their credit reports. Want to increase your credit score? Ridding your credit report of errors is one of the easiest ways to do so!

In fact, the FTC study found that “ . . . about 20 percent of consumers who identified errors on one of their three major credit reports experienced an increase in their credit score that resulted in a decrease in their credit risk tier . . .”

The FTC offers advice on not only how to get free copies of your credit reports, but how to dispute errors as well.

If you are ready to buy a home, stop listening to the naysayers in the media. Did you know that the millennial generation currently makes up the largest group of first-time homebuyers?  So even with wrestling over student debts and other, it’s not all is the gloom and doom as they say. Especially with new programs and relaxed underwriting requirements, buying a home is easier than you think.

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