For millennials, paying off students loans and growing savings accounts has taken precedence over investing in homes. Buying a home has become a second or third priority to entering the job market and paying off debt from education. It’s not that millennials don’t want to purchase homes like older generations, it’s that they don’t think they can.
Luckily, this trend is slowly turning around. The oldest millennials (about 37) are falling into the age group where they are serious about purchasing their first home. Millennials rank as the generation most likely to purchase a home in 2017, making up 34 percent of the pool of home buyers, according to the National Association of REALTORS®’ 2017 Home Buyer and Seller Generational Trends report.”
An agent can help you as a millennial capitalize on the housing market but it’s important that they understand and recognize your needs as a first-time buyer. Here are some tips to consider when saving and preparing to purchase your first home.
Your Credit Affects Lending Options
Lending restrictions have become extremely tight for first-time buyers. An A+ credit score is now 760 instead of 720, and in some cases a buyer will need a score of at least 780 to get a lender’s best rate. While you may have passed a credit check to score the lease on your dream rental apartment or home, your credit score will now be more relevant for securing a loan for a home purchase. If you are a first-time homebuyer with less than stellar credit, consider these options to improve your score before seeking out a lender.
Increase Credit Limits
Millennials preparing to apply for a mortgage should make sure their credit card limits are increased as high as possible. Your credit line with major banks should equal between 25 percent and 35 percent of your annual gross income. If you’re not at that level call and ask your bank for a credit increase.
Use High-Limit Cards
If you are a potential home buyer you should actively use all of your high-limit cards to ensure your bank doesn’t shut them down. Consider cycling through your credit cards, make smaller purchases, and pay off the balance on time each month. When a bank reduces your credit line or shuts down a card due to inactivity, your credit score will take a harsh dive. This is due to the ratio of your used credit to available credit (debt to income) will sink.
Pay Down Revolving Lines
If you have already bought a home and you have a home equity line of credit, you should try to pay it down quickly. Aim to get it below 50% so it’s not impacting your credit score negatively. Conventional loans don’t matter as much. For example, a 30-year conventional mortgage loan, regardless of the balance, will typically improve your credit score.
Realistic Down Payment
Inaccurate information is typically given to millennials and first time home-buyers that results in confusion and lack-of-confidence to purchase. Your agent should advise you on the purchase process, giving you realistic numbers about down payment expectations.
The median down payment for first-time buyers has been 6% for three straight years and 14% for repeat buyers in three of the past four years, according to NAR’s 2016 Profile of Home Buyers and Sellers. When non owners were asked about the amount of a down payment they would need to purchase a home, 87% of them indicated they would need a down of 10% or more. Your agent should inform you of the accurate amount that generally required. The realistic numbers should provide you with encouragement to take steps toward purchasing your first home!
Now that you’re armed with knowledge as a first time home-buyer, take the steps to improve your credit scores and set realistic expectations about saving your down payments. With these two huge factors taken care of you will feel more confident working with your agent to purchase your first home! If you’re already prepared to take that step and would like assistance, contact Fieldstone Homes at 801-233-8300 or online here.