Educating Millennials About Home Affordability and Their Home Financing Options
A recent survey by Apartment List shows that nearly 80% of millennials cite affordability as a major obstacle to purchasing a home. Adding to the issue, the U.S. homeownership rate was a mere 63.4% in the second quarter of 2015… the lowest level in almost fifty years.
But, as a real estate professional, you’re in a unique position to help these buyers understand all of their available choices. What can you to do to help millennials understand home affordability and their financing options when buying a home? Let’s explore your options so that you can build your business through this sizeable demographic.
Explain the Importance of Credit Scores
Not all young buyers understand the impact that their credit score can have on their ability to afford a home, so be sure to explain this at the very beginning. According to NerdWallet, the majority of millennials don’t meet the median credit score of 750 for loans backed by Fannie Mae, and a third of them don’t meet the industry standard minimum score of 620.
If you’re working with a young buyer who needs to understand more about their credit score, suggest they sign up for a free service like Credit Karma. The site provides free credit scores, and even breaks down the different things that make up a whole score. Using this information, millennial buyers can then take control of their scores to secure the best interest rates and financing.
Do your Millennial Buyers Know About their Down Payment and Loan Options?
Millennials are often unaware of how much they have to put down for their down payment, and plenty don’t realize that these amounts generally range from 3% to 20% of the total mortgage value. They also might not realize that there are programs designed to help them purchase a home without a 20% down payment.
Educate Millennial Buyers on their Low Down Payment Options
For some buyers, even a small down payment is an impossibility. In these scenarios you can suggest loans backed by Federal Housing Administration (FHA) and Department of Veterans Affairs (VA).
- FHA-backed loans require a 3.5% down payment, and certain criteria must be met (like a minimum credit score of 580 if the buyers wants the 3.5% down payment option.)
- For VA-backed loans, the buyer must be a service-member or retired service-member. In some cases surviving military spouses are also eligible. One of the biggest advantages to these loans is that there’s no down payment required, but buyers should be aware of additional fees.
Urge Millennial Buyers to Speak to Different Mortgage Lenders
FHA and VA-backed loans are two of the most common mortgage options for young buyers struggling with affordability, but your local lending institutions might also be able to help. When working with these buyers, suggest that they “shop around” with different banks and lenders. Many banks have special programs just for first-time home buyers and shopping around will help your buyers find the best possible loan option. Plus, your young adult buyers will get help determining how much house they can afford and could also get pre-approved for a loan.
Overall, working with millennial buyers can be an exciting prospect for experienced real estate agents. If you help them understand their home affordability options, and eventually help them find that perfect first home, you could be getting a happy client who chooses to work with you again and again.
Have you experienced millennial home buyers lack of education about home affordability? Discuss it with us in the comments below.
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