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If you are having FOMO when your friends are buying homes? The fear of missing out is normal. Before you take the jump as well, consider a few steps to take so you qualify for a mortgage within a year. According to a recent article by time.com, real estate investor and Australian millionaire Tim Gurner received some criticism for advising millennials to give up avocado toast and gourmet coffees in order to save up for a home. Another recent study showed millennials eat out more frequently than any other generation. But you don't need to forgo your favorite pleasures in life to afford a home. Rather, it's about knowing what mortgage lenders expect, setting goals and then achieving them. If your friends are buying homes, they likely followed a few key steps to qualify for a mortgage. Time magazine points out only 32 percent of home buyers in 2016 bought a home for the first time. Homeownership rate for millennials in their late 20s and early 30s is at a low rate of 35 percent.
Deal with any student loan debt
One of the first steps to qualifying for a home mortgage is to improve your debt-to-income ratio. One way to do that is to knock out debt such as student loan payments. Even if you have student loan debt, it's possible to get a mortgage, according to a piece by realtor.com. Forty-one percent of graduates with student loan debt delay buying a home. Mortgage lenders ideally want to see a DTI ration of no more than 36 percent. One idea is to refinance your student loan debt with a private lender at a lower interest rate. Smaller payments over a longer period of time also improve your financial picture when attempting to qualify for a mortgage.
Improve your credit score
Cleaning up your credit history and achieving a higher credit score is also a high priority if you want to own a home. Pay all of your credit cards on time. If you have a credit card with a low balance, pay it off and don't charge anything new on it. But low debt is only one part of the equation. The other side is income. If you don't earn a lot of money, consider a second job. The key is to get a job with taxable income reported on your income taxes. People with freelance jobs often take a lot of deductions that work against them when applying for a home mortgage. File your taxes every year, keeping all of your financial records in order.
Use a Roth IRA to beef up the down payment
Most millennials feel surprised to learn they can take out money from a Roth IRA to use on the purchase of a first home. In addition, a parent or grandparent can also withdrawal money from their Roth accounts to provide assistance for relatives buying a first home. Talk to your tax adviser about ways to receive a retirement credit as well as withdrawal money from a Roth without paying penalties. While people buying second homes or investment properties often make a 20 percent down payment on a home, it's an ambitious goal for a first-time home buyer. Instead of saving up 20 percent, aim for 10 percent of the cost of the home. Saving up at least 10 percent often covers the closing costs, down payment and real estate commission.
Once you have your finances in order, talk to a lender about a pre-approval letter that shows exactly how much a lender will lend you to buy a home. Once you know your price range, enlist the help of a real estate agent and start house hunting. Avoid comparing yourself to your friends who already own a home. Instead, enjoy the journey. At First Savings Mortgage, we assist millennials and first-time homebuyers interested in building wealth through home ownership. For more tips on how to qualify for a mortgage, please contact us.
Please note, by refinancing your existing loan, your total finance charges may be higher over the life of the loan.