LEE ANN BAUMER, ABR, SRS, CSA, Green, SRES
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August 17, 2017 1:51 am
Are you, or someone you know, a millennial currently dreaming about your first home? Is something holding you back?According to a survey conducted by loanDepot, 52 percent of Millennials cite no longer wanting to pay rent and being ready to start a family as two top drivers motivating them to start looking into home ownership. However, according to the survey, half of those are anxious about the expense of real estate and mortgage payments, with only 18 percent saying they think a home purchase is affordable for them.
"It's clear from the survey results that Millennials have a lot of anxiety built up about the home-buying process," says David Norris, loanDepot's Head of Retail Lending. "There is good news, however, as there's more flexibility than most Millennials think regarding how to qualify for a loan and what's needed for a down payment."
Top tips for Millennials from loanDepot lending professionals around the country include:
Know how much is needed for down payment
According to survey results, Millennials are unsure how much down payment they need to put down, with the average coming out to 32 percent. And while the industry standard is typically 20 percent down payment, there are other options.
John Pearson, a loanDepot licensed lending officer based in Hoboken, N.J., says there are many programs for first time homebuyers (FTHB) that allow them to finance a property with 10 percent, 5 percent, or even 3 percent down. There are also loan assistance programs offered by FHA that many don't realize their can qualify for.
"The best advice I have for young buyers is to not believe everything you read on the Internet," Pearson says. "When talking with a professional, you can discuss your specific financial situation and the lending officer can help you determine how much down you'll need and what a monthly mortgage payment will look like. You'll probably discover you don't have to wait until you reach the point of a 20 percent down payment."
Don't be surprised by closing costs
According to Marc Bui, retail lending manager for loanDepot in Newport Beach, Calif., many Millennials he works with don't realize there are costs beyond the down payment required to close.
"When I'm working with today's youngest buyers, I help them plan for all final costs, which can include HOA (homeowners' association) fees, property taxes, private mortgage insurance (PMI) for those putting less than 20 percent down, title, appraisal, etc. It's important to understand everything that goes into closing so there are no unpleasant surprises," Bui says.
Include parents but listen to professionals with an open mind
About 54 percent of Millennials say they plan to ask their parents about how to buy a home, with slightly fewer at 52 percent saying they'd first turn to a mortgage broker or company.
"It's great when young home buyers include their parents in the process," says Scott Nadler, a top 1 percent licensed lending officer in the U.S. and based in loanDepot's Manhattan office. "When young couples come to me wanting to buy their first home, many times I'll suggest a 7- or 10-year adjustable mortgage, which allows them to build equity while having a lower monthly mortgage payment. Many parents are nervous about adjustable mortgages but if someone plans to trade up in a few years, they will be out of the mortgage before the adjustment. My best advice for Millennials is to make sure they feel comfortable with the product they select."
Student loans may not prohibit a home loan
According to the Urban Institute, student loan debt has increased sharply over the last decade and has surpassed credit card debt. This stressor is a top concern for Millennials who are interested in purchasing a home in the near future.
At the end of April, Fannie Mae announced three policy changes designed to help prospective homeowners struggling with student-loan debt. Two changes help borrowers with high student-loan debt qualify for mortgages while the other policy change helps homeowners refinance their home to pay down their student loans.
Debt paid by others: This change widens borrower eligibility to qualify for a home loan by excluding non-mortgage debt, such as credit cards, auto loans, and student loans, paid by someone else, such as parents.
Student Debt Payment Calculation: This change increases the odds that borrowers with student debt will qualify for a loan by allowing lenders to accept student loan payment information on credit reports.
Student loan cash-out refinance: Fannie now offers homeowners the flexibility to pay off a high-interest rate student loan while potentially refinancing to a lower mortgage rate.
"Some lenders have special programs for borrowers with certain types of student loans," says Mary Bane, vice president, regional production for loanDepot in the Chicagoland area. "Medical professionals with student loans that have been deferred for 12 months or longer can avoid having that debt repayment counted as part of their debt. The assumption is that their income will increase dramatically so they will pay off the debt quickly as soon as they are fully employed."
Another potential option is the 40-year mortgage loan program from loanDepot that requires 10 percent down payment and good credit, but has a 10-year interest-only initial repayment period that could help borrowers tackle their student loan debt while they make lower mortgage payments. The following 30 years are fully amortized.
Published with permission from RISMedia.
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