Many millennials have been taking their time focusing on things that matter to them. But just because they're not as quick to act on traditional goals, doesn't mean they are not ready for them. Let's take their qualifications for mortgage approval, for instance, many are not even aware they are mortgage ready.
History shows that people tend to buy their first home around age 30. Nearly 5 million millennials will turn 30 in the next two years. This will continue to fuel demand for housing.
This is also one of the many reasons why the millennial homeownership rate has continued to grow over the past few years. 48.4% of Americans between the ages of 30-34 now own a home.
There are over 46 million millennials (33% of the generation) who are considered "Mortgage Ready", meaning they meet the qualifications to be approved for a mortgage today!
"We now know there are millions of buyers with the income & credit necessary to qualify to buy a home. The biggest question is:
Do they know it? ...Unfortunately, many renters don't investigate homeownership simply because they don't believe it's an option."
The good news is that more and more millennials are realizing that they can afford a home now. Even so, more can be done to increase awareness of low down payment programs to attract even more of this generation.
New data from realtor.com shows that in December, millennials accounted for 42% of all new home loans originated in the month. This is more than any other generation.
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There's undoubtedly an effervescent urge in everyone to decorate and make tiny changes here and there after buying a house. We all have it, and to some, giving in to these urges may cause future problems with mortgages. So here's a list of things to avoid after getting your mortgage application approved.
1. Don't change jobs or the way you are paid at your job!
Your loan officer must be able to track the source and amount of your annual income. If possible, you'll want to avoid changing from salary to commission or becoming self-employed during this time as well.
2. Don't deposit cash into your bank accounts.
Lenders need to source your money and cash is not really traceable. Before you deposit any amount of cash into your accounts, discuss the proper way to document your transactions with your loan officer.
3. Don't make any large purchases like a new car or new furniture for your new home.
New debt comes with it, including new monthly obligations. New obligations create new qualifications. People with new debt have higher debt to income ratios... higher ratios make for riskier loans... and sometimes qualified borrowers no longer qualify.
4. Don't co-sign other loans for anyone.
When you co-sign, you are obligated. As we mentioned, with that obligation comes higher ratios as well. Even if you swear you will not be the one making the payments, your lender will have to count the payment against you.
5. Don't change bank accounts.
Remember, lenders need to source and track assets. That task is significantly easier when there is consistency among your accounts. Before you even transfer money between accounts, talk to your loan officer.
6. Don't apply for new credit.
It doesn't matter whether it's a new credit card or a new car. When you have your credit report run by organizations in multiple financial channels (mortgage, credit card, auto, etc.), your FICO score will be affected. Lower credit scores can determine your interest rate and maybe even your eligibility for approval.
7. Don't close any credit accounts.
Many clients have erroneously believed that having less available credit makes them less risky and more likely to be approved. Wrong. A major component of your score is your length and depth of credit history (as opposed to just your payment history) and your total usage of credit as a percentage of available credit. Closing accounts has a negative impact on both those determinants of your score.
Any blip in income, assets, or credit should be reviewed and executed in a way that ensures your home loan can still be approved. The best advice is to fully disclose and discuss your plans with your loan officer before you do anything financial in nature. They are there to guide you through the process.
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A lot of Americans are holding back on buying homes because of their credit score. The sad truth is the majority of this group are misinformed and should have already started earlier than they plan to.
Only 25% of the Americans have a FICO Score between 740 and 800. Here is the breakdown according to Experian:
Randy Hopper, Senior Vice President of Mortgage Lending for Navy Federal Credit Union said,
"Just because you have a low credit score doesn't mean you can't purchase a home. There are a lot of options out there for consumers with low FICO scores,"
There are many programs available with low or no credit score requirement. The Federal Housing Administration (FHA) now requires a minimum FICO score of 580 if you want to qualify for the low down payment advantage. The US Department of Agriculture (USDA) does not set a minimum credit score requirement, but most lenders require a score of at least 640. Veterans Affairs (VA) loans have no credit score requirement.
As you can see, none of them are above 700!
It is true that the average FICO score for all closed loans in January was 726, but there are plenty of people taking advantage of the low credit score requirements. Here is the average FICO Score of closed FHA Loans since April 2012 according to Ellie Mae:
As you can see, that number has been dropping for the last seven years. As a matter of fact, the average FHA Purchase FICO Score reported in January 2019 was 675!
One of the challenges is that Americans are unsure about their credit score. They just assume that it is too low to qualify and do not double check. Credit.com confirmed that only 57% of individuals sought out their credit score at least once last year.
"Since October 2009, the average year-over-year FICO Score has steadily and consistently increased, from a low of 686 in 2009 to the latest high of 704 as of 2018."
Here is the increase in the average US FICO Score over the same period of time as the graph earlier.
At least 84% of Americans have a score that would allow them to buy a house. If you are unsure what your score is or would like to improve your score in order to become a homeowner, sit down with a real estate professional that can help you to set a path to reach your dream!