Tuesday, November 18, 2014

Millennials: How to make your home ownership dreams a reality

20838984_web(BPT) – Owning a home is part of the American Dream, yet standards on income, credit and debt are making it tougher to buy a home than it was 10 years ago. Even though requirements are relaxing, only three out of five borrowers get approved.


While stricter standards make it tougher for young families to qualify for a mortgage, millennials said they understand why these standards exist and think the tougher requirements won’t stand in their way of buying a home, according to a new survey commissioned by loanDepot.


In fact, millennials today are serious about doing what’s required to get a mortgage. The research surveyed 1,000 millennials who don’t own a home and found 35 percent plan to buy within five years. What’s more, millenials are taking steps now to turn their dreams into a reality by getting their credit in order, paying down debt and saving for a down payment.


“Income is a key to opening the doors of homeownership for millennials, and they’re more than committed to it; they’re actively planning for it,” says Anthony Hsieh, chairman and chief executive officer, loanDepot LLC. “Our improving economy is making it practical for millennials who want to own their own homes in a few short years to get ready now. Their strong desire to become homeowners, coupled with the commitment of getting their finances in order, suggests a renewal in first-time buyer demand may be possible if we sustain necessary economic and market conditions.”


With their prospects improving as the economy picks up, millennials are forming households faster and making more money compared to a few years ago. One in three millennials said an increase of 15 percent or less in income will be enough to turn them into homebuyers, a significant proposition for the economy.


Because mortgage lenders use debt-to-income to evaluate a borrowers’ ability to repay a loan, student debt is a growing burden on millennials interested in financing a home. Unlike medical debt, student debt carries an equal weight to credit card debt. Nearly half of those surveyed said it’s unfair to weigh both types of debt equally.


As for the tougher requirements to getting a mortgage, millennials do think the tougher standards guard against risky loans and will help prevent another mortgage crisis. More than half say making it easier to get a mortgage will result in more foreclosures.


If you have student debt and want to buy your first home, here are a few ideas and tips to help you prepare:


* Lower your debt-to-income ratio (DTI). DTI is your total monthly income as compared to your total monthly debt payments. Most lenders will only lend to you if your DTI is at or below 43 percent. So to lower it, try to increase your income by pursuing a promotion or raise, finding a higher-paying job or taking on part-time work. Decrease your required monthly debt payments by refinancing or consolidating student loans and paying down any credit card balances.


* Get your credit score in order. Analyze your credit report before you start the home buying process. Dispute incorrect derogatory information and ensure all three credit-reporting bureaus list all of your positive information. Pay all your bills on time, reduce credit card balances to 30 percent of the credit limit or lower, and don’t open new credit cards if you already have a few.


* Save for a down payment. Make a budget for each month before it starts, with a plan for spending and saving, and stick to it. Stash away extra money from bonuses, overtime or financial gifts on your birthday or holidays. Find a roommate to help pay your rent or move into a less-expensive rental. Do freelance or contract work on the side. Sell unneeded stuff on Craigslist.



Millennials: How to make your home ownership dreams a reality

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