Millennials are the most likely generation to purchase a home in 2017, according to a National Association of REALTORS® (NAR) study of generational trends. Over the last four years, 34 percent of home buyers, the largest group, have been age 36 and younger.
With the oldest millennials turning 37 this year, many are looking to buy their first home, says NAR. So it’s a good idea to understand the needs of these first-timers.
NAR provided a list of tips on how to get financially prepared for the big home purchase:
Lending restrictions can be daunting–An A-plus credit score is now 760 rather than 720, and in some cases, a buyer needs at least 780 to get the best rate. If a buyer has less than stellar credit, there are options to improve a score before speaking with a lender:
- Increase credit limits. Clients preparing to apply for a mortgage should make sure their credit card limits are increased as high as possible. Credit lines with major banks should equal between 25 percent and 35 percent of a person’s annual gross income. If a client is not at that level, suggest they call and ask for a credit increase.
- Use high-limit cards. Potential home buyers should actively use their high-limit cards so that a bank doesn’t shut them down. They should consider cycling through their credit cards, making smaller purchases, and paying off the balance on time each month. If a bank reduces a credit line or shuts down a card due to inactivity, that person’s credit score will take an immediate dive because their ratios of used credit to available credit (or debt to income) will go down.
- Pay down revolving lines. For clients who aren’t first-time home buyers and may have a home equity line of credit, some suggest paying it down quickly. Clients should get it below the 50 percent level so it’s not negatively impacting their credit score. Conventional loans don’t matter as much. For example, a 30-year conventional mortgage loan, regardless of the balance, will typically improve your credit score.
Down Payments for First-Time Buyers
As agents advise potential buyers on the purchase process, they should be sure to share realistic numbers about down payment expectations. “Apparent confusion about down payment requirements may also be behind non-owners’ lagging confidence about buying,” according to NAR’s Aspiring Home Buyer Profile,
The median down payment for first-time buyers has been 6 percent for three straight years and 14 percent for repeat buyers in three of the past four years, according to NAR’s 2016 Profile of Home Buyers and Sellers. However, when asked about the amount of a down payment needed to purchase a home, 87 percent of non-owners indicated that a down payment of 10 percent or more is necessary. Agents should let their clients know the accurate amount that’s generally required, which should provide encouragement for them to take steps toward a home purchase.
Once first-time home buyers are armed with knowledge about how to improve their credit scores and have realistic expectations about the savings required for a down payment, they should feel more confident working with your agents to purchase their first home.