Millionaire to Millennials: How to Qualify for a Home
The housing market is heating up and sales are booming, yet many millennial’s aren't in a big rush to become homeowners. To each his own. But according to self-made millionaire David Bach,"If millennials don't buy a home, their chances of actually having any wealth in this country are little to none. The average homeowner to this day is 38 times wealthier than a renter.”
So why are millennials dragging their feet? The reasons vary. Some delay buying a home because they’re saddled with student loan debt, whereas low starting wages and an uncertain financial future keeps others on the sideline.
Regardless of the circumstances, ownership is within reach. The key is researching mortgage loan information and gaining a clear understanding of how to qualify for a home.
Here are four ways millennials can start their journey to homeownership.
1. Live With Your Parents
What college graduate doesn’t want to move out and live on their own? This is understandable, but there are advantages to sacrificing your independence and living at home after graduation. Your parents will likely charge less rent than a landlord. If you can reduce your housing expense, there’s an opportunity to pay off student debt sooner.
2. Prepare for Mortgage-Related Expenses
Living at home not only presents an opportunity to pay off student debt, it also presents the right set of circumstances to save for mortgage-related expenses, such as your down payment and closing costs. Some home loans require as little as 3.5% to 5% down. But if you’re able to save a 20% down payment, this helps you secure a lower interest rate, a smaller mortgage payment, plus you’ll avoid private mortgage insurance.
3. Manage Credit Responsibly
You don't need perfect credit to buy a home, but a credit score in the 700 to 800 range can help you get a low-rate mortgage. Paying off debt and paying bills on time are essential to improving credit. If you’re having difficulty paying back your student loan debt, don’t default. Speak with your student loan lender and ask about forbearance or deferment. Both provisions allow you to temporarily stop making monthly payments without damaging your credit.
4. Take Baby Steps
Your first house doesn't have to be your dream home. Even if it's small and needs some work, a starter home is a steppingstone to something better. Live in the property for a few years, build equity, and then sell and put your profit toward a down payment on another property.
Ownership is financially rewarding because of the opportunity to earn equity and build wealth. Before you jump into homeownership, do your homework and prepare. The more you understand about the process, the easier it will be to secure an affordable mortgage.