I’m a Mortgage Broker and this is What I Tell Millennials about Buying a House
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At a Glance
Mortgage broker Danny Marshall dishes on his experience with millennial home buyers and shares his tips for millennials looking to buy a house.
There are plenty of stereotypes about millennials – one of them is that they aren’t buying homes. But, actually, they are, except that they have unique challenges and situations that other generations may not have dealt with. Mortgage broker Danny Marshall has been in the mortgage industry for over 12 years, and he’s seen it all. Below he shares some of his insights about millennial buyers and what he tells millennials clients about buying a house.
What makes millennials unique when it comes to mortgages
According to Marshall, millennials are unique in two ways when it comes to buying a home: They prefer to pay their mortgages off early, and they prefer to live in smaller homes. Their biggest challenges are being able to afford mortgage payments, deciding whether to rent or buy, having a good enough credit score to get a mortgage, and saving for a down payment.
“Millennials have been labeled many things over time, but they are not necessarily different from previous generations in terms of how they want to handle their finances,” says Marshall. “However, what sets them apart is the fact that they are much more likely to pay off their mortgages sooner than any other generation. According to data from the Mortgage Bankers Association (MBA), approximately 40% of millennial homeowners paid off their mortgages before the age of 30. In comparison, only about 20% of generation X-ers did the same thing.”
He adds that millennial homebuyers tend to look for larger houses than older generations, but the median size of what they end up with tends to be smaller. “While the average size of a house purchased by gen X is about 2,500 square feet, the average size of a millennial’s home purchase is 1,800 square feet,” he says. “That said, however, the median size of millennial homes is around 1,400 square feet. Older generations tend to buy homes closer to 2,000 square feet.”
What millennials should know about buying a home
There are a few things Marshall wishes every millennial knew about buying a home. First, that buying a house is not just about finding a place to live – it’s also about making sure that you’re getting a good deal. “Millennials have been hit harder than any generation before them by the housing crisis. As a result, many millennials are now having trouble buying homes at all,” he says. “Even if they do manage to buy a home, they often end up paying more than they should for their mortgage.”
While the urge to get into the housing market ASAP can be strong, he advises millennials against rushing. “Buying a home isn’t something you do once you’re out of college and ready to settle down. Millennials aren’t rushing into homes until they’ve been working for at least five years. In fact, many people wait even longer than that before purchasing their first property.”
Other things aside from credit score matter too. “It’s true that if you have good credit, you’ll get a lower interest rate and save money over time. But you shouldn’t base your decision solely on your FICO score. A lot of factors go into whether or not you qualify for a mortgage, including how much you make, what type of loan you want, and where you live,” according to Marshall.
Also, if you’re a millennial, you shouldn’t let your friends pressure you. “Your friends may tell you that you need to buy a house right now, but don’t listen to them. If you think you can afford a home without taking out a big chunk of debt, then you probably can. That said, you don’t want to put yourself in a situation where you end up paying more than you can afford just because everyone else is doing it.”
Finally, factoring in taxes is really important too, and Marshall wishes all millennials were aware of that. “When you decide to purchase a home, you have to consider both the monthly payments and the total amount of tax you’ll pay each year. Make sure you understand how much you’ll owe in property taxes and how much you’ll save by owning versus renting.”
Mortgage broker tips for millennials buying a house
His top tips for millennial home buyers? Know your credit score, shop around, make sure you can afford it, get pre-approved, find out about down payments, save money ahead of time, and watch out for mortgage scams.
1. Know your credit score
Before buying a house, make sure you know your credit score. You should be checking your credit report at least once a year and look out for errors. “If you find errors on your report, contact the three major credit bureaus (Equifax, Experian, TransUnion) right away. You can get free reports once per year from each bureau,” says Marshall.
2. Shop around
“Look at several houses before making your decision. Ask friends and family if they know anyone who owns a home in your area. Also ask about local neighborhoods and what kind of amenities are nearby,” he adds.
3. Make sure you can afford it
Don’t start talking to lenders before crunching numbers, he says: “How much do you need to pay? What is your monthly payment going to be? Do you have enough money saved up to cover the mortgage payments?”
4. Get pre-approved
Some lenders will require you to get pre-approved, so it’s a good idea to take that step ahead of time. “When you apply for a loan, you will likely need to provide proof that you have good credit. To help you prove that you are financially stable, lenders may require that you get pre-approved for a loan. When you get pre-approved, you are telling lenders that you are able to afford a certain amount of money,” says Marshall.
5. Find out about down payments
You should aim to put 20% down on a home, but you can choose to put more or less depending on your situation. Marshall advises doing that math ahead of time.
6. Save money ahead of time
Saving money towards that payment is obviously key. Don’t assume you’ll just come up with the funds to cover extra costs at the last minute too – closing costs can creep up on you. “Saving up money for a down payment and closing costs can take months or even years. So, if you aren’t ready to buy yet, try to save as much money as possible while you wait,” says Marshall.
7. Watch out for mortgage scams
If you come across a deal that seems too good to be true, chances are that it is. Marshall recommends reading online reviews and asking friends for recommendations to avoid scams. “Millennials face some unique risks when it comes to mortgages. One risk is that mortgage fraudsters target them specifically. Fraudsters pose as real estate agents, landlords, and even banks to trick borrowers into signing contracts that leave them with no choice but to pay thousands of dollars upfront,” he says.