How Millennials Can Get a Home Loan in 2018
Rather than starting out with some tired joke about Millennials and diamonds, Millennials and Ramen, or Millennials and their useless college degrees -- we’re actually here to give you some good news.
Millennials have a fantastic advantage when it comes to purchasing a home in 2018.
The advantage is being a first-time home buyer in a strong economy. No, you don’t need a credit score of 700 or more. You don’t need $20,000 for a down payment (though that would be nice, wouldn’t it?). All you need is information and a bit of discipline over the next few months, and you’ll be well on your way to homeownership.
Ready? Here’s the Sparknotes version of how you first-timers can buy your first house. (For the longer version, we recommend our First-Time Homebuyer Guide, but we won’t be offended if you’re strapped for time and want to stick around on the blog).
Buying a Home: The Bare Necessities
In order to qualify for a mortgage, you’ll need a few basic things:
Proof of regular (steady is best!) income.
Decent standing with the credit bureaus
A down payment, most of the time.
These are the bare minimum, but it definitely helps to have:
An emergency fund so you won’t fall behind on your mortgage if times get tough
Two years of employment history at the same employer
A large down payment (this will help you get the best rates and terms on your home loan)
An idea of how much house you can afford
A good credit score (700 or above)
Now, if you don’t meet some of the criteria above, don’t panic! There are tons of home loan programs for Millennials that cater to first-timers with bad credit, a low down payment, and even a spotty employment or income situation.
Types of Home Loans for Millennials
Millennials and first-time home buyers have access to all of the same home loan products as anyone else. However, some mortgages are considered better for Millennials because they offer low down payments or are more accommodating to people with poor credit. These are:
FHA Loan: The FHA loan is backed by the government, so banks tend to accept more risk when doling out these loans to homebuyers. Translation? You can probably qualify for an FHA loan even if your credit is poor, but you will need at least a 3.5% down payment.
USDA Loan: The USDA loan is similar to the FHA loan, except it’s designed for low-income earners in rural areas. See if your location qualifies you for a USDA loan here.
Conventional 97: This is Fannie Mae and Freddie Mac’s answer to the low-down payment government-backed loan programs. With this loan, you’ll only need a 3% down payment, though you may need decent credit to qualify.
Finally, if you’re in the military, you’ll definitely want to check out the VA loan. With no down payment requirements and excellent rates, the VA loan is one of the best products on the market.
Getting Started Buying Your First Hom
One of the best ways to expedite the home purchase process is to get pre-approved for a mortgage. It buys you peace of mind -- you’ll know exactly how much you can borrow -- and you’ll start establishing a relationship with your lender. To get preapproved for a mortgage, you’ll need to bring all financial documents that relate to your income and financial situation, including:
Personal and contact information (social security number, address, phone, etc.)
Proof of employment and income
Tax documents
Monthly expenses
Gift letter (if you’re getting a down payment as a gift from family)
Note that you’ll need additional documentation if you’re self-employed.
Ready to start house hunting? Gain the confidence and know-how with our tell-all first-time homebuyer guide, or drop us a line. We’re here to help with all of your first-timer questions!