Millennials are busy paying down record student loan debt during a struggling economy, while also worrying about the basics of life, putting them in a challenging environment to buy a home.
As a result, it’s more important than ever that Millennials educate themselves on mortgages, which prompted us to share Andrea Murad’s FOXBusiness article titled: Tips for Millennials Looking to Secure a Mortgage.
#1 Know Your Credit Profile
In part, lenders will use your credit report to determine how much money they can lend you for a home, and how much to charge you.
So it’s important that you regularly monitor your credit report, review it carefully, and correct mistakes. If you have a low credit score, seek professional help to repair your credit.
#2 Know Your Debt
Lenders use your debt-to-income ratio as a main criterion to determine whether you qualify for a mortgage loan, because it is a good indicator of your ability to repay the loan.
There is a front-end ratio and a back-end ratio, which you should know and monitor.
Learn more about the debt-to-income ratio, and how to calculate it: What is your debt-to-income ratio, and why is it important in qualifying for a mortgage?
#3 Know Your Income
It’s common sense that your income is important to qualifying for a mortgage, because you need income to make the mortgage payment. But, it’s important to understand “where” your income is coming from and how that affects your ability to qualify for a mortgage.
For example, it can be more difficult to qualify for a mortgage if you are self-employed rather than a W-2 employee.
As a result, it’s important to know how lenders will view the sources of your income, and the documentation you will need to provide when applying for a mortgage.
See our Loan Application Checklist to get an idea of the documentation you will need to apply for a mortgage.
#4 Know Your Down Payment
It can be difficult for Millennials to come up with a 20% down payment for a home, especially while trying to pay off student loans in addition to all the other expenses of life.
Fortunately, though, there are options:
- You Don’t Need a 20% Down Payment for a Home Mortgage
- Is it Acceptable to Borrow Funds for the Down Payment on a Home?
- Buying a Home? Where will the funds for the down payment come from?
#5 Know Your Savings
The cost of owning a home doesn’t stop with the monthly payment, so it’s important to have some savings to pay for the unexpected costs of homeownership, in addition to the unexpected costs of life.
In this video, we show you more about the debt-to-income ratio, and questions we ask clients to consider when thinking about the expense of owning a home: What is your debt-to-income ratio? Questions we ask borrowers.