When the Fed raised the interest rates on mortgage loans last month, this news was deemed to be a signal that the American economy was on the upswing. However this hike of percentage point has had consequences for the millennials who had been hunting for homes. As per the new studies revealed by Fitch Ratings, the average millennial borrower has lost 9% in mortgage capacity since the past 3 months.
Hefty rents, stagnant wages, mammoth levels of student loan debt have kept millennials from purchasing real estate. The stringent underwriting standards introduced by the lenders post the housing bubble clearly implies that the owners require higher scores to obtain a mortgage.
#1: Build a stellar credit score
This is a no-brainer with regards to securing a mortgage. The higher your credit score is, the better will be the odds of grabbing a mortgage loan with a lower rate. Ensure you pay all the bills on time, pay back your student loan debt and keep increasing your debt-to-income ratio to enhance your credit score. Make sure you also order a copy of your report and check errors keeping in mind identity theft. If you find anything that is not done by you, this is the best time to clear it off before even the lender gets to see it.
#2: Target a bigger down payment
The minimum amount which you wish to put down is 20% to avoid paying PMI or private mortgage insurance. The more you pay down, the less risk you will appear to your lenders and more equity you will get to start in your home. Hence, if the ultimate goal is homeownership, make sure you begin saving ahead of time, even though that may mean a very small amount. Also make sure you’re not compromising on the other financial items and you’re contributing towards your retirement fund.
#3: Research all sorts of costs included in the loan
Make sure you’re well-acquainted with the housing market where you have planned to buy the house which you can afford. Don’t only take into account the price of the home as there are several other costs that need to be factored in. Owning a home will mean factoring in closing costs, insurance costs, home maintenance fees, homeowner’s fees, utility payment and other numbers which can add up.
During early October 2016, the interest rate on a 30 year loan was 3.45% but since the week of 5th January, the rate leaped from 4.5% to a 2-year high as per Fitch Ratings. Hence if the loan amount which a would-be buyer could afford during autumn was $120,000, since the last week, the loan value dropped to around $109,000, assuming that every other factor apart from the rate hike remained the same.
So, if you’re a millennial who is worried of homeownership and how much house you can afford, you should take into account the above mentioned factors. Grab the best loan so that you can repay on time and take care of your credit score.