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The millennial mortgage is on the rise. As more of Gen Y leaves college and enters the workforce, they are looking for a stable, affordable living situation. Most of these are first-time homebuyers.
So you’re a millennial looking at the housing market, the millennial mortgage process, and the prospect of first-time home ownership. It can be a lot to process, especially if you don’t know where to start. Here are some tips that will help you navigate the mortgage process and end up with a home you both love and can afford.
Start Building Good Credit Early
One of the primary factors that will determine what kind of loan you can get approval for, what interest rate you’re looking at, and how much mortgage insurance you’ll have to pay is your credit score. Getting a credit card may seem terrifying, but it is one of the best ways to build good credit quickly.
Get one credit card (if you already have multiple credit cards or a lot of credit debt, don’t worry; we’ll address that in a minute), use it to make small payments on a regular basis (paying for gas can be a good option here), and pay it off in full at the end of each month.
If you don’t want to or can’t get a credit card, don’t worry. There are other ways to build good credit. If you’re currently renting, make sure you pay your rent on time every month. Same goes for electric bills and other regular bills; all of these contribute to your credit score.
Pay Off Debt
A lot of millennials are facing massive amounts of student loan debts. This may also be coupled with credit card debts, car payments, or other debts that will negatively impact your debt to income ratio, another factor which lenders look closely at in a millennial mortgage.
Particularly in the case of student loans and credit card payments, paying off that debt may seem impossible. It will be worth it, though, when you apply for your mortgage. Pick the biggest debt and work towards paying that off first.
Save For Closing Costs
There can be a lot of surprise expenses associated with closing that first-time homebuyers may not always account for. However, these are just as crucial to getting your loan as a good credit score and debt to income ratio.
The first big cost that usually springs to mind is the down payment. Most lenders require a down payment of at least 3%, though some can work with no down payment. The more you can save to go towards a down payment, the less you’ll have to pay in the long run in mortgage insurance, interest fees, and the like.
But there are also other closing costs associated with a millennial mortgage. Use an online closing cost calculator to estimate what your closing costs might be, and start saving for those as well as for your down payment.
Consider Options for a Millennial Mortgage
There are several options you want to consider when decided what variety of mortgage loan to use. The Federal Housing Authority (FHA) offers loans that are very popular among millennials; the USDA and VA also offer government-insured loans. Beyond that, there are conventional lenders, such as Fannie Mae and Freddy Mac.
A few factors you want to take into account when looking at different loan options are how much they require on a down payment, whether they require mortgage insurance, and what requirements they have for credit scores and debt to income ratios. Talk to a loan officer if you have questions about the requirements for any of these loans. Then select the one that will work best for you.
Apply for Preapproval
Many lenders will allow you to apply for preapproval on a millennial mortgage. Not only will this speed along your mortgage process when it comes time to make an offer and set up closing, it can also give you a firmer idea of what price range you’re looking at in terms of home costs. And if there is an issue with your credit score or your debt to income ratio, this will allow you to start addressing the problem before you get to the mortgage application process.
Look through the list of lenders you compiled when you considered loan options. Pick the one that will offer you the best options, and get in contact with them. Preferably you’ll want to start the preapproval process a few months before you even begin touring houses.
Hire a Realtor(R)
Finding a home that is in an area you like, fits your needs and preferences, and is a good financial fit can feel like trying to solve a Rubik’s cube blindfolded. A realtor can be very helpful in getting you through this process.
Make sure you find a licensed, reputable Realtor(R). Talk to friends who have bought houses in the last several years; ask who they used and what their experience was like. If you don’t know anyone who’s bought a home recently, look on review sites.
For millennials moving from an apartment or even a parent’s house, there can be a lot of expenses associated with homeownership that may be unexpected. If you’re coming from an apartment where all utilities were included, having to pay electric, water, sewer, trash, natural gas, internet, and cable bills, in addition to mortgage and insurance, can be a shock.
Make sure you look closely at what expenses will come with owning a home in your area. Ask about rates on utility services, and compare them to your monthly income and budgeting needs. This will be very important in choosing a mortgage payment you can afford.
Getting a mortgage as a millennial can seem overwhelming and intimidating, but it is far from impossible. For help getting the best mortgage deal for you and joining the legion of first-time homeowners, visit EMetropolitan. Our online calculators will help you get your mortgage process started, and our excellent representatives will help you finish it.