Nothing can stop millennials from becoming a homeowner, including those who are actively improving their credit scores. Even industry experts are noticing that a significant percentage of millennials are flocking the housing market this year to fulfill their American dream of homeownership.
In a recent WDTV5 article, real estate agent Denise Everson noted that millennials are now “at a point where they were able to save up some money and they’re just ready to get out there on their own”. Compared with their parents’ generation, however, millennials were also observed to be using different strategies to buy a home. Homebuying could be a stressful process, especially for those who are buying on a strict budget. Here are some practical tips millennials may consider when buying a home:
Think before considering putting a low down payment
Putting a low down payment is one of the strategies millennials consider to become a homeowner. While the FHA and some conventional loans accept down payments below 20 percent, homebuyers should figure out if paying mortgage insurance would make sense for them. Mortgage insurance is a policy that protects lenders against a borrower who puts a low down payment of below 20 percent when he or she stops making monthly mortgage payments. Mortgage insurance costs typically depend on the amount of the down payment that a borrower is willing to pay. Some prospective buyers, therefore, wait until they could put a 20 percent down because it could help them get better rates from lenders and they can have lower monthly payments.
Put it in writing when using a gift fund
Millennials who struggle to save for a down payment ask for financial help from their parents. Homebuyers who expect to receive a lump sum inheritance or those who received down payment gifts over the holidays should know that lenders have rules when documenting down payment gifts. Lenders want to make sure that the down payment that the borrower will use in the transaction comes from a legitimate source and it’s not another loan that he or she must repay.
Shop around for everything related to homebuying
Experts often advise shopping for a mortgage lender to get the best favorable interest rates. However, homebuyers could further lower their overall purchase cost if they will also shop for title insurance and other closing services. According to the U.S. Consumer Financial Protection Bureau (CFPB), homebuyers could shop separately for some of the closing costs that lenders pay to third-party providers. Homebuyers could check the Loan Estimate for the items they could shop for.
Get a mortgage pre-approval before looking for a home
A 2019 National Association of Realtors (NAR) research revealed that a significant number of first-time homebuyers immediately shop for a home instead of obtaining a mortgage pre-approval from a lender. Skipping the pre-approval process is one of the common mistakes that first-time homebuyers do. Homebuyers who have a mortgage pre-approval let home sellers know that a lender had checked and verified their credit and finances and might agree to lend to the potential buyers to buy a home up to a certain amount. Even with a pre-approval, homebuyers should know that they need to meet the lender’s requirements first before getting “approved” to finance their purchase.
Get in touch with a professional loan advisor
Professional loan advisors are experts that help homebuyers secure a mortgage to finance their purchase. Aside from assisting serious homebuyers secure a mortgage pre-approval, they could also offer invaluable insights to help them come up with smart financial decisions before making the big purchase. Loan advisors are well-versed in discussing loan products that suit the budget of the buyer. Many serious and experienced homebuyers consider meeting with a loan advisor as the first step when buying a home.