2 years ago, Forbes Magazine stated that it was the year of the millennial customer. That was because the generation is the largest in the US and they are going to have a lot of spending power in the coming years. Forbes claimed that they will be spending $200 billion annually by 2017, and $10 trillion over their lives as consumers. Also, a March 2015 report from the National Association of Realtors found that millennials are 32% of the real estate buyer market. And, in 2015, 50% of millennials said they were very likely to buy a home. There are several reasons why millennials could soon be buying their first home:
We have been hearing for years that mortgage interest rates are going to rise, but this really has not happened yet. The Federal Reserve has been keeping interest rates low to encourage economic growth, and there are not any major signs that a large interest rate increase is on the way.
Young buyers with good credit can currently get a 15 year mortgage for as little as 3% interest. And if you get a 30 year loan, you can expect to pay around 3.5%. These are fantastic rates that are unlikely to ever get much lower. Keep in mind that your grandparents in the 1970s were paying 15% interest rates on houses!
Depending upon where you choose to buy your home, you should be able to find some affordable homes in many parts of the US. Of course, if you choose CA or downstate NY, you could be in for a very different story. There are many sectors of the interior US where prices are very low but you still can get good appreciation over the years. Good bets for buying homes are in Texas, Indiana, North Carolina, Kansas and Colorado.
Some people are under the impression that the mortgage meltdown in 2008 means there are no more low down payment loans. This is nonsense. Of course, in the ideal world, you would put 20% down on your home as this gets you the lowest interest rate, and you can avoid paying for mortgage insurance.
However, a 20% down payment usually means $40,000 or more in cash you are giving up. Even if you have it, that is a lot out of your savings account. Fortunately, there are still 3.5% and 5% down payment loans out there. FHA offers a 3.5% down payment loan with a very low interest rate. And many conventional lenders have 5% down payment loans. Even if 100% financing loans are mostly gone, you still can get into a home for little down. That's a big break for young buyers.
It may be a stretch to say that the housing market has fully recovered from the last recession and mortgage crash, but it has largely come back, and property values are rising steadily in many areas. Rising property values are good because it indicates a healthy economy. Also, when you buy your home, you will be increasing your equity each year with your payments and also with rising property values.
One of the most important ways to build wealth for the long term is to own a home and build equity. With home values rising, it is likely that you will be able to build your equity over time, and that increases your net worth. Of course, while millions of millennial customers are preparing to buy their first home, there are some things that they will need to take care of first to make sure they can do that:
Having a lot of credit card debt will drop your credit score by 30 points or more. To get your credit score as high as possible before you apply for a mortgage, try to pay down your credit cards. If you have college loan debt, try to pay that down as much as you can as well. This will help you to qualify for lower interest rates.
As we stated earlier, you do NOT need to have a 20% down payment to buy a home. That was the case in the 1970s, and for awhile after the mortgage crash of 2008, getting a home loan with less than 20% down was harder. But now, you can get a loan with as little as 3.5% down. For any military veterans or active military, know that you can get a 100% financing loan from the VA. That makes buying a home very easy for you.
Some mortgage loans have considerable underwriting flexibility, such as FHA loans, and you do not need to have stellar credit to qualify. However, if you have a lot of late payments in the last year or two, this could affect your ability to get a mortgage. At least a year before you plan to apply, you should make sure that you are paying all of your bills and debts on time. You do not want to be showing late payments in the 24 months leading up to getting a mortgage, ideally.
This is a very good time for millennials to be buying a home. Rates are low, property values are rising, and homes are still very affordable in most major metropolitan areas outside of the highly populated areas on both coasts. By purchasing your first home when you are young, you are putting yourself in much better financial shape very early in your adult life. To do so, you just need to save some money for a down payment, which might be as little as $5000 or $10,000, depending on the prices of homes in your area. Then clean up your credit, pay down debt and keep all of your payments on time, and you should be ready to buy your first home! Learn More about Millennials and First Time Home Buying.
First Time Home Financing.com does not offer mortgages or direct financing. FTHF.com is a website that offers information about house financing and does not promise that all applicants will be approved for the new FHA loan program with lower mortgage insurance. This website and its affiliates have no affiliation with the FHA or any other government agency. This website offers information about lending services by publishing editorial content related to the U.S. finance sector.
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