That moment when you just cannot stand writing one more check to your landlord so that he can pay his mortgage payment; that is the moment you are emotionally ready to buy your own home, at least according to investment experts. We would like to extend that list of moments to include the longing to get the kids a dog, drooling over the weird paint color you would love to paint the bedroom walls and the green thumb, itching to dig in its own backyard. Now starts the sometimes-long road to home ownership that Birmingham’s millennials just like you have traveled. Yup, others have paved the way for you, so if you follow their example, at least the examples of those who’ve been successful, you’ll soon be picking up dog poop in your very own backyard.
Cold, hard cash
Houses cost money. Big money. At least initially. And, according to a recent apartmentlist.com survey, of the 80 percent of millennials who want to buy a home, only 68 percent of them have managed to save less than $1,000 and a sad 44 percent of that group have nothing saved. “Based on their current rate of monthly savings, our survey found that millennials in many of the nation’s large metros will need at least a decade to save enough money for a 20 percent down payment on a condo,” claim the site’s Andrew Woo and Chris Salviati. That’s not hard to believe with rent like what we have in Birmingham. Nearly 60% of renters pay nearly 40% of their income on rent, according to a 2016 study. They go on to say that millennials in the pricier large metros, such as San Francisco, San Diego, and San Jose have a waiting time of “almost 24 years.” Buyers armed with a 10 percent down payment can shorten the wait to five years or less, according to the study. Which means that those who choose a FHA-backed loan, a Fannie or Freddie or USDA loan, with an even lower down payment requirement, are sitting pretty. Then, there are the many local, regional, state and national down payment assistance programs. See? Every cloud has its silver lining. The moral of the story is to start saving now.
The word “millennial” is so often followed by “student loan debt,” in the media one would think it’s the generation’s middle name. While it is true that this debt is at an all-time high, and some millennials are on the hook to repay up to $53,000, it’s not the impediment to home ownership that some make it out to be. Birmingham is also in the top 2% of cities with student debt with people 25 to 44-year-olds owe an average of $35,893 per a 2016 study from wallethub.com. The simplistic will advise you to boost your income and eliminate your debt when considering purchasing a home. While sage advice, it’s unrealistic to tell someone who longs to purchase a home to wait the aforementioned 24 years. And, there is relief for many to-be Birmingham millennials with two recent announcements by Fannie Mae. Currently, lenders look at a borrower’s debt-to-income ratio (how much you owe vs. how much you earn, known as DTI) and require that it be no higher than 36 percent. After July 29 of this year, however, that ratio can be as high as 50 percent, under certain conditions. Then, in April, Fannie Mae announced a new policy specifically aimed at millennial home buyers who have student loan debt. Basically, it excludes any debt that isn’t mortgage-related (auto loans, credit cards and, yes, student loans) from the borrower’s DTI, as long as these debts are paid by someone else (such as a parent). Curious about your debt-to-income ratio? Use the online calculator at nerdwallet.com. If your DTI is still too high, despite the new solutions from Fannie Mae, get busy increasing your income and decreasing your debt. The College Investor offers a brilliant list of 10 “Easy” Ways to Earn $100 per Month and also see 8 Ways to Eliminate your Student Loan Debt. Credit history So, what if it’s not necessarily student loan debt but a lousy credit history standing between you and home ownership? There’s good news on that front as well. The so-called “Big Three” credit reporting agencies, Experian, Equifax and TransUnion recently announced that most tax liens and civil judgments will no longer end up on credit reports, provided the information in the creditors’ report isn’t complete. “Specifically, the data [submitted to the credit reporting agency] must include the person’s name, address, and either date of birth or Social Security number,” according to Diana Olick at cnbc.com. Apparently, errors like this are common, impacting a large number of loan applicants. “With these hits to their credit removed, their scores could go up by as much as 20 points,” Olick claims. Even if you don’t have judgments or liens on your credit record, it’s always a good idea to order all three reports and pore over them for other mistakes. The Federal Trade Commission claims that about 20 percent of American consumers have a mistake on their reports. Ridding your report of errors is one of the easiest ways to increase your credit score. In fact, the FTC study found that “ . . . about 20 percent of consumers who identified errors on one of their three major credit reports experienced an increase in their credit score that resulted in a decrease in their credit risk tier . . .” The FTC offers advice on not only how to get free copies of your credit reports but how to dispute erroneous information as well. If you truly want to buy a home, stop listening to the naysayers in the media. The millennial generation currently makes up the largest group of first-time homebuyers, so obviously, not all is the gloom and doom they say it is. Especially with the new programs and relaxed requirements, buying a home is easier than you think. Birmingham has experienced 6 years of growth in the housing market, but there is a section of the population that is reluctant or think they can participate. It might be time to start looking at what the Birmingham housing market has to offer before interest rates become the next culprit that keeps you out of your dream home.
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