If you’ve been renting a home (or living with your parents) it may be time to consider becoming a first-time homebuyer. While exciting, we know taking on this type of financial responsibility can seem overwhelming and stressful. In fact, research shows millennials’ top priorities are saving versus spending when it comes to luxury purchases. According to Goldman Sachs, only 30% on those aged 25-45 years old say buying a home is “important, but not a big priority.”
Why is that? Data shows the average first-time homebuyer is 31-years-old. That number has remained virtually unchanged since 1970. On top of that, research from Nerdwallet says millennials are renting for an average of six years. That’s only one year more than renters in 1980. So, maybe our generation isn’t so different from those that came before us.
So, what is different? When interviewed, millennials stated they were renting over buying because:
- Credit history or credit score
- High closing costs and insufficient down payment
- Financial stability/income
- Existing debt, including student loans
Those reasons are certainly worth considering and taking very seriously before applying for a mortgage. But don’t sell yourself short. Amplify is here to help break these worrisome points down so you understand how paying a mortgage pays toward your future.
First, when you pay rent, you’re paying your landlord’s mortgage. That’s money you will never see again. The benefit of having a roof over your head is pretty much where that benefit stops. As a matter of fact, your rent may be costlier than a mortgage depending on your lease and the state you live in. Plus, owning a home increases your net worth and gives you equity, something that improves your credit and gives you more financial stability—not less.
Next, owning a home gives you the freedom to create, change, renovate, decorate, and manipulate your space, and live how you want. For example, if you move into a new rental property, Fido may not be able to join you or your pup will cost a fortune in additional rental fees. When you own your home, one dog, five cats, and a partridge in a pear tree is your choice. Not to mention, Goldman Sachs research shows that in 2012, 23% of those 18-31 year olds were married, and married couples really enjoy living on their own.
It’s obvious why buying your own home has many perks and is a positive investment in your future, but let’s get back to those pesky, anxiety-inducing bullet points, and break them down piece-by-piece.
Concern: Lack of Credit History or a Less-than Perfect Credit Score
Yes, credit standards increased in the 2000s, however with government agencies like the Federal Housing Administration (FHA) assisting in home loans, those with an average FICO credit score of 688 are getting approved. While it helps if your credit score is 750 or above, there are also opportunities for getting a mortgage if your credit score is below 680.
15% of your score is based on your credit history, so the longer you’ve had credit, the higher your score can be. The good news is, this is a small percentage compared with your payment history, which is 35% of your credit score. Pay your bills on time, in full, and consistently, and your score will be higher. Also, VA and FHA loans are not affected by credit history (conventional loans are). Our advice, keep an eye on your credit score and credit report to make sure everything makes sense and no errors slip through the cracks.
Concern: High Closing Costs and Insufficient Down Payment
We know you’ve heard that you should put 20% down on your home. While that’d be great, it’s uncommon these days. Popular loans, like the FHA mortgage, requires a 3.5% down payment. That means a $300,000 home wouldn’t need a $60,000 down payment, but $10,500—which is a much more affordable amount. Mortgage rates have also been consistently low. They’re holding steady around 4%, compared to 6% in 2007, and 18% in 1980!
As for closing costs, you have options. Do your research and you may find that buyers are quick to sweeten deals to finalize the terms. You can even negotiate lower fees with the lender or close at the end of the month so you can prorate your daily interest charges.
Concern: Not Enough Financial Stability/Income
It is very important to look at your present and future job and monetary situation. You may want to ask yourself, will I be promoted, change jobs, continue to build my savings, have a major life event? Applying for a mortgage and working with an Amplify banker will help you answer these tough questions, determine what type of mortgage and loan you can afford, and review potential financing options.
The Bureau of Labor Statistics has determined that the average salary of a millennial is $35,592. If first-time homebuyers account for 42% of homebuyers this year, there’s proof you don’t need to be a millionaire to own a home.
Concern: Existing Debt, Including Student Loans
Some debt works in your favor. As we already learned, if you’re paying your loans, credit cards, etc., on time, every time, your credit will be positively affected. Student loan debt is no different, so don’t let it keep you from buying a home. As a matter of fact, Zillow found that homeownership increased for each successive level of education, even for those with student debt.
At Amplify, we know your concerns. We are millennials and we know mortgages. We also know that with the right research and speaking with the right banking professionals, you can start investing in your future by buying a home. Between certain tax benefits, increased equity, personal comfort and security, and a low rate mortgage payment, you may wish you stopped paying someone else’s mortgage sooner.