Home buying obstacles are real for everyone, however the millennial generation will have to jump hurdles. Since the housing crisis of 2008, it's become harder to purchase a home. Lenders require a down payment, and banks scrutinize an applicant’s financial history. For millennials, this poses a unique challenge, especially since they're graduating college into one of the toughest job markets and living paycheck to paycheck. But this doesn't mean millennials should close the door on homeownership. Here are seven ways this generation can overcome home buying obstacles.
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1. Don't Pay Late
Getting approved for a mortgage loan is all about the credit score. Millennials can improve their credit by paying bills on time. Depending on the mortgage loan, applicants are rejected if they have more then two 30-day late payments in a 24 month period. So whether you have student debt, an auto loan or credit card payments, never pay late to avoid home buying obstacles.
2. Use Credit Cards Responsibly
Not only should you pay debts on time, you need to use credit cards responsibly. Getting a credit card is one way to establish credit, but since debt accounts for 30% of credit scores, it's important to pay off balances in full each month, and only use a credit card when you can afford an item.
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3. Watch Your Car Payment
After graduating college and getting a job, buying a car might be the first thing on your to-do list. Just know that a high car payment can reduce purchasing power when buying a house. You may apply for a specific mortgage amount, but because you're committed to a high car payment, the lender may say you qualify for much less.
4. Organize Your Finances
Get your financial documentation in order before applying for a mortgage. You need your most recent paychecks and income information from the past two years, such as W-2s or complete tax refunds. Also, the bank will need to see bank account statements, which is how they're able to confirm funds for your down payment and closing costs. If you have other assets, provide this information as well.
5. Save Money
Nowadays, it's harder for the millennial generation to save money. However, if you want to purchase a home, you'll need cash in the bank. Down payments range between 3.5% and 5%, and closing costs can be 2% to 5% of the sale price. Plus, there's application fees, credit report fees, appraisals and home inspections.
6. Rethink Self Employment – at Least Right Now
If you have an entrepreneurial spirit, you might be plotting your escape from a traditional 9-to-5 to start your own business. But if you're thinking about buying a house in the near future, now isn't the right time to quit your job. Self-employed people can purchase homes, but it's much harder for them. They need to show at least two years of tax returns, and their income must stay the same or increase from year-to-year. It might be better to buy the house first, and then start your own business.
7. Ask Questions
If you don't know a lot about buying a house or getting approved for mortgages, don't be afraid to ask questions. You can research home buying tips online, or speak to your parents or a banker. These people are more than happy to provide all the information you need and offer advice to getting your foot in the door with a bank.
Buying a home is a major milestone as an adult, but it has its challenges. The trick is knowing what to expect early and preparing your finances. What are other ways for millennials to overcome home buying obstacles?
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