The Millennials are eager to buy their own homes. So getting pre-approved for a mortgage before making a purchase offer is absolutely the first priority. Qualifying isn’t as easy as it once was and it requires a pro-active approach.
Knowing this here are five mortgage tips for Millennials:
1. Consider a Low Down Payment Loan:
Saving for a down payment can be a challenge for millennial home buyers. This challenge isn’t quite as high as what you might believe. Many people qualify to get a mortgage and buy a home with a very small down payment sometimes as low as 3% and when added with some of the down payment assistance programs can be as little as $1,000. Qualified Military service persons who can qualify for a VA loan can buy a home with no down payment.Low down payment loans usually require mortgage insurance or a funding fee that can be financed. There are even no mortgage insurance options which comes with a slightly higher interest rate.
2. Expect to Document Your Income:
To qualify for a mortgage you will need to document your past and present income along with proof that your income is likely to continue. By law, lenders need to prove your “capability of repaying” back a mortgage. This proof comes in the form of showing your how much you earn and how steady and consistent your income is. Be prepared to disclose your W-2s, Federal tax returns, bank statements, and any other income-related documents.
3. Check Your Credit:
Lenders know that young people don’t usually have a long credit history so it is important to make sure the credit that you do have is free from errors, collections or other items that might hurt your credit scores. Your credit score is critical for lending purposes. It represents the likely hood of you defaulting. Get copies of your credit reports from the three major credit bureaus, Experian, TransUnion and Equifax, and review the reports carefully with your Loan Officer. If you find an error or mistake take the necessary steps to report it to the credit bureaus and ask that it be corrected. The best way to raise your credit scores and qualify for a lower mortgage interest rate is to pay all your bills on time every month. Never miss a monthly payment. Remember, it doesn’t matter how much you owe it’s the fact that you can show that you borrowed money and paid it back on time. Whether it’s $10 or $10,000 it doesn’t matter. You borrower – you pay it back. That is what lenders want to see.
4. Manage Your Student Loan Payments:
Lenders use a calculation known as a debt-to-income ratio (DTI) as part of the loan qualifying process. Your DTI will be based on your gross income and monthly debt obligations which will include current or future student loan payments. Paying off other debts and managing your student loans payment can help you qualify for a mortgage. Keep in mind that it is not about the amount owed but “what is the minimum monthly payment”. If your loans are in deferment the lender will need to use 2% of the principal balance unless there is proof of what the monthly payment will be.
5. Save for Closing Costs and Escrows:
You might be able to negotiate with the seller to pay for some or all of your closing costs and escrows. In the Twin Cities area 3% of the sales price is very common. As an example, you could offer a seller $194,000 with no seller paid closing costs or you could offer them $200,000 with the sellers paying 3% towards your closing costs and escrows. Either way the seller nets the exact same amount. There are many options when it comes to how to pay for the closing costs and escrows.
My suggestion for all Millennials is to take the pro-active approach and get fully underwritten and approved up front and well in advice prior to looking at buying. The more upfront work you do now the smoother your future purchase transaction will be in the future.
Feel free to contact me, your Edina Mortgage Expert with any questions.