5 Mortgage Tips for Millennials

Millennials, like other generations before them, are eager to buy their own homes. Typically, that means qualifying for a mortgage before making a purchase offer. Qualifying isn’t as easy as it once was, but many millennials can and do qualify for home financing successfully.

With that in mind, here are five mortgage tips for millennials:

1. Consider a Low Down Payment Loan

Saving a down payment can be a high hurdle for millennial home buyers. This hurdle often isn’t quite as high as millennials might believe; many people qualify to get a mortgage and buy a home with a very small down payment. Some conventional loans allow a down payment as low as 5 percent or even 3 percent. The minimum down payment for an FHA loan, insured by the Federal Housing Administration, is 3.5 percent. Military service persons and others who can qualify for a VA loan, guaranteed by the U.S. Department of Veterans Affairs, can buy a home with no down payment. Low down payment loans usually require mortgage insurance or a funding fee that can be financed.

2. Expect to Document Your Income

To qualify for a mortgage, you’ll need to demonstrate to the lender that you earn enough income to make the monthly payment. That demonstration comes in the form of documents, either paper or electronic, that show how much you earn. Be prepared to disclose your W-2s, bank statements, income tax returns and other income-related documents.

3. Check Your Credit

Lenders understand that young people don’t have decades-long credit histories. Still, it’s important to make sure the history you do have is free from errors that might hurt your credit score and consequently your ability to qualify for a mortgage. Get copies of your credit reports from the three major credit bureaus, Experian, TransUnion and Equifax, and review the reports carefully. If you find a mistake, report it to the bureau and ask that it be corrected. The best way to raise your credit score and qualify for a lower mortgage interest rate is to pay all your bills on time every month.

4. Manage Your Student Loan Payments

Lenders use a complex calculation known as a debt-to-income ratio (DTI) as part of the loan qualification process. Your DTI will be based on your income and monthly debt obligations, including current or future student loan payments. Paying off other debts and managing your student loans well can help you qualify for a mortgage even if your student loans won’t be paid off for a long time. If your loans are in deferment, finding out how much your payments will be later on is one of the best mortgage tips for millennials.

5. Save for Closing Costs

You might be able to negotiate for the seller of the home you want to buy to pay some or most of your closing costs. You also might want to build the costs into your mortgage by accepting a slightly higher interest rate. Even still, it’s a good idea to be prepared to pay some costs upfront and at closing. Examples of home buying costs include a credit check, home inspection, homeowner insurance, prepaid interest and mortgage insurance.

Contact our home loan agent or mortgage broker in San Ramon to get pre-qualify before looking for homes.