The New Millennial Housing Market

    Millennial buyers made up 34% of the housing market in 2017.

    Millennial buyers were the largest group that year in the housing market, with 66% of them being first-time buyers. That means nearly half of all millennial buyers are already in the housing game and have bought and sold more than one property.

    Those who couldn’t count themselves in the 34% of millennial buyers were only held back because of finances. In fact, 93% of millennials want to be homeowners soon and are expected to spend about $2 trillion on home purchases over the next five years.

    The biggest roadblock that millennials face when considering a home purchase is the qualifying process for a mortgage loan. Student loan debt and the high home prices in the California market can make buying a home a near-impossible feat. It can be intimidating for younger first-time buyers to consider qualifying for a mortgage.

    There are options for those that want to buy but feel that they can’t afford a down payment for a property on their own. For some, you don’t need to look much farther than home for help to get into the housing market.

    Gift Funds From Mom and Dad

    A borrower can use gift funds if they need more cash for a down payment. Gift funds are an excellent option to get the cash you need to cover the homebuying costs you can’t afford on your own.

    Gift funds can come from a close relative or family member. Lenders don’t verify if the donor of the funds is a relative, so there is leeway with regard to making a person an “eligible” donor.

    There are some requirements when it comes to using monetary gifts for your down payment. FHA down payments can be made up of 100% gift funds. Conventional down payments can be 100% gift funds if the down payment is 20% or more. If the conventional down payment is less than 20%, borrowers need to bring in at least 5% of their own funds. With conventional loans, gift funds do not need to be “sourced,” so the donor’s funds can come from pretty much anywhere.

    It is a requirement that the money being used is truly a gift. The donor must state that funds being gifted have no repayment requirements and are being used as a gift for the borrower’s loan expenses.

    If it seems taboo to ask a close relative for funds to help you get your first home, it’s not. The National Association of Realtors cited in their 2018 Home Buyer and Seller Generational Trends reported that almost a quarter (23%) of millennial buyers used a gift from a friend or relative for their down payment.

    Cosigning the Loan

    Younger borrowers can also have their parents cosign their loan applications as cosigners to improve their qualifications for a mortgage loan. There are two different types of mortgage cosigners: occupant and non-occupant.

    An occupant cosigner is someone who will physically live in the home that is being purchased.

    A non-occupant cosigner is someone who will sign the loan, but they will not actually live at the property.

    It is important to note that cosigners become partially responsible for the repayment of the loan if the primary borrower defaults on the loan or becomes unable to make repayments.

    How Millennial Buyers Can Improve Their Credit

    If you are a young borrower and are looking to get into the housing market sooner rather than later, there are a few things you can do right now to set yourself up for success.

    1. Lower your debt-to-income ratio (DTI).

    Debt-to-income ratio is determined based on your total monthly income compared to your total monthly debt payments (such as student loans). The best way to lower your DTI is to make consistent payments towards your debt and pay down any credit card balances.

    1. Work on your credit.

    We often see young borrowers with no established credit. Our advice is always to establish at least three or four accounts as soon as possible. We cover ways to do this in one of our past blogs.

    • Secured Cards: Credit card providers like Capital One and Wells Fargo will offer “Secured cards.” These are credit cards with credit limits that are matched by cash deposits from the cardholder. They often start with as little as $200 credit limits.
    • Buy a Car: the terms will not be good, but auto financiers are very flexible for buyers with proof of employment.
    • Department Store Credit Cards: These issuers also tend to be more flexible.
    1. Save for a down payment.

    Plan for when you’d like to buy a home and build a budget around that timeline. Making a budget and planning early will set you up for success later when you are able to start house hunting.

    Take the next step towards finding your best mortgage.

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