67% of millennials who want to own a home have $0 saved for a down payment — and 18% have less than $10K. Here are the 2 big obstacles and how to overcome them
When it comes to homeownership, the generational divide speaks volumes.
The US census bureau found that about 70.6% of 45 54-year-olds own a home, compared to only 62.2% of people aged 35 to 44 years.
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If that’s surprising, a survey by Apartment List shows that a growing number of renters have given up on homeownership, 74% of them saying that they can’t afford to buy a home.
Not having a downpayment and bad credit are major stumbling blocks for millennials. 67% of the population say they have no savings for a down payment, while 42% cite bad credit as one of their biggest holdbacks.
If you worry about your credit score or that you don’t have enough saved, here are some strategies to help you make homeownership a reality
Create a budget and savings plan
A study by the National Association of Realtors shows that millennials are willing to stretch their budgets in order to buy a home. Of course, you need to have a budget in the first place before you can push it.
The latest survey from the National Foundation for Credit Counseling shows that only 30% of households have a detailed plan of what to do with each paycheck. Additionally, only 27% have a strategy to pay down their debt.
Laying out your monthly income and expenses lets you create clear savings objectives. You’re better able to analyze your spending habits and manage your finances. It’s an easy way to figure out how much you want to save each month to afford a home, and adjust your spending to make that a reality,
Improve your credit score
Credit scores measure how good you are at managing debt. It’s a score between 300-850, and the higher your score, the better you are at handling the money you owe. You’ll also often get a better mortgage rate from lenders if your score is higher.
Generally, you need a score of 620 to qualify for a mortgage, although there are some that are offered if your score is lower.
According to Experian, the average FICO score for millennials was 687 in 2022.
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That’s not bad, but when you’re concerned about your ability to make a downpayment and keep up payments in general, you want the best mortgage rate possible.
The greatest factor contributing to your credit score is your payment history - making up about 35% of the total.
The best way to maintain a healthy payment history is to use your credit card, but keep your balances low and pay off any debts you have on time. This demonstrates that you take debt seriously and always manage to pay off any you’ve got.
Having a mixture of loans is also recommended to show how you manage debt. For instance, student and car loans combined with credit card debt show how you manage multiple payments.
Having a longer credit history also looks good in the eyes of lenders and can improve your credit score. Keeping a single credit card, but having it for a long time, is better than having multiple cards. This is because it shows you’ve learned to manage your debt and have a proven track record of paying things off.
Consider alternative down payment options
According to the Bank of America, only 29% of millennials would ask for help from their family to buy a home, and 37% said they plan to use public or private grants to help them cover closing costs.
Most first-time homebuyers are only able to make a downpayment of 6% on a home, and more than 1 in 4 of them say that saving this money was the most difficult step in financing a home purchase.
Looking to alternative down payment options can help make this process easier on you - and your wallet.
For instance, a Federal Housing Administration (FHA) loan requires only a downpayment of 3.5% for first-time home buyers.
If you’re looking to move to a rural area, you might qualify for a U.S. Department of Agriculture (USDA) loan, that doesn’t require a downpayment at all.
Similarly, a loan through the U.S. Department of Veterans Affairs (VA) doesn’t need a downpayment - though this might be a requirement of certain lenders.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.