4 Mortgage Tips for Millennials

Despite what many articles might tell you about how millennials are ruining everything and will never own homes due to their addiction to avocado toast and complete disregard for napkins, millennials actually make up the largest share of homebuyers, and have since 2013.

But, that doesn’t always mean it’s easy. When you’re younger, you lack the credit history that could help you in securing the purchase of your dream home, and, although it’s not allowed, lenders may think you less of a reliable borrower as a young person. So how do you make it work? We’ve got some tips for you 20 and 30 somethings trying to finance that perfect place.

1. 1. Get ready to apply for your mortgage.Before buying your home, you’ll want to make sure you have everything in order that you’ll need to apply for your mortgage. Do you know your credit score? Proof of employment? Your income? Have you looked around at lenders and different types of mortgages? Have you drafted a budget?

      It’s important that you understand your financial situation before you can start the homebuying process, because without this information, the rest of this list won’t even make any sense. So, check up on your credit, and start saving money, because this quite the process.

   2. Find the best loan for you.Luckily, millennials have tons of options when it comes to mortgages. We’ve ranked a few of your options.
      • FHA LoansSometimes, the biggest hurdle on buying a home is the dreaded down payment. Society says you need to pay 20% of the cost of the home in your down payment to minimize costs in the future, but what millennial can afford all that at once? That’s where this government-issued loan comes in handy. The down payment is only 3.5%, and you only need a credit score of 580 or above, which works in the favor of younger people with no credit history. Even more, they will also consider your co-signer’s income (meaning that if mom and dad are helping you out, you’ll be in an even better place) and they ignore any student loan debt. These factors making this the most popular choice for first-time homebuyers.

        Warning: Because the down payment is so low, you’ll be required to pay mortgage insurance which will add more to your monthly payments. This happens any time the down payment is less than 20%, but on FHA loans, the insurance payment won’t go away no matter how much equity you have in your home. This isn’t the case with conventional mortgages and their private mortgage insurance.

Read more about Mortgage Insurance here! 

1. 1. • Conventional MortgagesFannie Mae and Freddie Mac loans will also offer low down payments at only 3% and the insurance required is much cheaper than that of FHA loans, and can save you more money in the long run.

        Warning: This is only the case if you have a good credit score, so if your score is above 620: go for it.

      • Piggyback LoansYou’re a millennial, you’re clever. So, you may want a way to avoid that pesky mortgage insurance we keep mentioning. Well here it is. By choosing a lender that offers piggyback loans, you’ll be able to get one loan at 80% of the cost of your home, followed by a second (the piggyback portion) to cover another 10%, and a 10% down payment.

        Warning: These will be more expensive at the get-go, and typically are only offered to those with higher credit scores, since you’re taking out so many loans, you’ll need more proof of being a good borrower.

   2. Find an education programYou thought you were done with school? Think again! Every state offers first-time homebuyer assistance programs, and while these are primarily mortgage plans, they also offer a homebuyer education course (although I’m sure you’re feeling like an expert already as an Apruebame.com reader). The course is required to get the benefits the offer, including down payment assistance, lower closing costs and mortgage rates below the market average.

      Jokes aside, attending an education program will be beneficial to you, and no, we won’t think you’re cheating on us. You’ll cover things like budgeting and credit, how to shop for and finance your home, and how to maintain all of that in the long run. These courses do cost money, but only between $25 and $125. A small amount compared to the huge amounts of money that attending these classes could save you in the long run.

   3. Start smallMillennials are notorious for dreaming big - and it’s great to set big goals for yourself! However, it’s also important to be realistic, and in this case, being realistic could mean starting off the chapter in your life as a “homeowner” with a smaller home than your dream one.

      It’s totally normal for most millennials to first buy smaller or older homes in maybe less popular areas, because that’s what you can afford! On the plus side of that, it could mean that your neighbors are other millennials just like you in the same situation. Condos can also serve this purpose. Either way, these starter homes are a perfect way to work your way up as a homeowner, especially as your situation will change as you reach different milestones in your work and personal life.

   4. Be sure you’re really ready to buy a homeThis advice is different than the first bit. While it’s one thing to assess your financial situation, it’s another to commit to owning something so permanent. Like stated earlier, your life is subject to a lot of changes when you’re young. So just because your financial situation may permit you owning a home, your life may suggest otherwise. Maybe you’ll be moving for your career, as many millennials do, jumping from job to job in this market. You won’t want to deal with the trouble of selling and buying another home. Or on the more negative side, you may realize that owning a home comes with more expenses than you originally imagined outside of the mortgage itself, and now you’re feeling unprepared.

Related: When to Buy or Rent a Home

No matter how you go about it, buying a home at this stage in your life is possible - and could be one of the best decisions you’ve ever made. Just be sure to consider all factors, both personal and financial, and make the choice that’s right for you.