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| Photo: Millennials "Hanging Out" from Realtor.com |
Only
about 2% of the millennial generation (those born between 1981 and 2000) are in
a position to buy their own homes and condos. Most face a host of financial
hardships and challenges. But if you look past worries and fears, you'll find sources
of potential.
According
to an article written by Jonathan
Smoke (a chief economist at Realtor.com), below
are four areas of concern and strategies to offset them:
1) You are worried about debt,
especially student loan debt
Debt can interfere with home-buying prospects. In
order to qualify for a mortgage, you need a debt-to-income ratio (or DTI) of no
more than 43%. A hefty student loan
balance could easily disqualify you. Therefore, try to limit your total debt
payments (student and auto loans, credit cards, etc.) to less than 15% of your
income. Try to avoid racking up new debt, and look at buying more affordable
homes. Also, when casting your vote in the next election, aim to select a
leader who presents a plan to help lower payments.
2) You are worried about your
credit score
Here are some interesting statistics: In 2015, the
average FICO score for a millennial with a mortgage is 714. The average FICO
for all Americans is 695. And the average FICO for a millennial with an FHA
mortgage is 682.
A score of 750 will bring you the best rates,
while a score of 650 lowers the odds of getting approved for a mortgage.
Therefore, work to get your traditional credit score as high as you can. This
will ultimately benefit you when buying.
3) You have no savings for a
down payment
Keep in mind that you don't need to put 20% down
on a property. In 2015, the average millennial has put down as little as 7% to finance
a home. The more you put down, the better the rate. But don't be afraid to put down
as little as 3% (0% if you are a veteran) and also look into the availability
of local down-payment assistance programs.
4) You are angry and worried
about ever-increasing rents
Rents are sky-high. The majority of renters in the
US now have to spend more than 30% of their income to rent a typical home. Renting is also counterproductive to growing your savings and building a credit
history. Therefore, consider making sacrifices now for the long term—join
forces with other millennials and take on roommates, live in smaller places and
if need be, spend a season moving back with your mom and dad. Aim to save money
until you can afford to buy. The tide will turn!
