Young & short on cash?
– you can still get a mortgage!
Buying a home can be intimidating for just about anyone. But many younger millennials don’t even try, because they assume that student loan payments and limited job experience mean they can’t possibly own real estate.
“That’s nonsense,” says Tom Sebring, a mortgage loan officer in Newport Beach, CA, “The key is to demonstrate that you are able to make your monthly payment, that your credit card bills are paid on time, and that you do not have too much debt.”
HERE ARE THREE SECRETS
to getting a mortgage with a payment that you can afford when you’re young and don’t have much money. You may find it’s even cheaper than renting.
1. Get a loan with no down payment
Most mortgage lenders want you to make a 20% down payment and will require you to pay for private mortgage insurance, or PMI, if you can’t meet that threshold. PMI protects the lender if you stop making payments.
But a Zillow survey found 3 in 5 millennials can’t afford to put 20% down. If that’s you, don’t worry that you’ll be stuck renting for years. Believe it or not, a few mortgage programs require zero down payment to get started.
• Veterans and active U.S. service members qualify for a VA mortgage. No down payment is needed, and you can get a loan with a credit score as low as 580.
• Many cities, Orange County and the State of California have grants and “silent second mortgages to give you a total of 100% financing.
• Looking to buy in a rural or suburban area? The U.S. Department of Agriculture requires no down payment for its USDA loans for low-income buyers with at least a 640 credit score. There are parts of Orange County that qualify
Note that with these mortgages offering 100% financing, you must still pay closing costs.
2. Make just a small down payment
Millennial home buyers who don’t qualify for the zero-down-payment mortgages might turn next to the FHA (Federal Housing Administration) loan program. It allows you to purchase a house with as little as 3.5% down with low rates, even with lower credit scores. Conventional financing is also
On a modest starter home costing $400,000, that’s just $3,500, which might be what you’d pay for the security deposit and first month’s rent on an apartment. So, open a savings account and start putting that down payment money aside. Plus, you’re allowed to ask the seller to help with your closing costs, up to 6% of the home’s sale price.
3. Crank up your credit score
You might land a mortgage on more affordable terms if you have a great credit score. If you don’t know yours, it’s easy enough to check your credit score for free.
Part of the home buying process is managing existing debt so that monthly expenses are easier to handle. “Your income should support the amount you expect to pay in mortgage, taxes, interest and other expenses,” says Lee. “You should have a plan to balance your cash inflow and cash outflow.”
If an offer on a house doesn’t go through on the first try, the house-hunting process can put you in the mindset of cutting back on spending (just say NO! to your daily Starbucks) and paying down debt — which can only be good things.