Millennials are quickly becoming the fastest growing percentage of home buyers in the country and make up the majority of first-time home buyers. As the oldest Millennials begin to reach their thirties and higher levels of career responsibilities and salary, many will begin to settle down and begin to look at homes. Some will look at the Charleston area for its beautiful weather, friendly communities, and emerging job markets that match Millennials' technology-focused skillset and education.
Our younger generation of first-time homebuyers can take advantage of a buyer-friendly market where mortgage interest rates are still low and there are friendly programs for first-time homebuyers. However, they also face unique challenges than other generations of homebuyers that may require a little more flexibility, creativity, and patience. In the end, though, the time you take to research and understand what it takes to apply and get approved for a mortgage loan will help you get one step closer to buying that first home of your dreams in Charleston, SC.
Understanding How Much You Can Afford for a Monthly Mortgage Payment
If you begin the process of applying for a mortgage, you will get a quote from various lenders that pertain to how much you're pre-qualified for. Just remember this is different from the amount of money you're pre-approved for. The pre-approval process involves a number of additional steps, including income verification, credit history, etc. You may be pre-qualified for a certain amount, but can you afford that monthly payment every month?
Getting Your Debt to Income Ratio as Low as Possible
Let's say you apply for a $200,000 mortgage where the monthly mortgage payment with property taxes, interest, principal, home owner's insurance is $1500 a month. If you make $8000 a month as a household, your debt to income ratio will only be 19%. But what if you have other monthly payments? For example, many Millennials have student loans. Those go into your debt to income ratio. Do you have credit card payments or car payments? Those affect your debt to income ratio as well. The goal is to get below 43% to provide assurance to the bank that you will be able to afford your monthly mortgage payment.
Reviewing Your Credit Score
The credit score you need to qualify for a mortgage loan may depend on the type of mortgage loan you're applying for. For example, a conventional mortgage loan from a bank will typically have stricter credit limits than an FHA or USDA loan. At the same time, a FHA loan or USDA loan that is guaranteed by the federal government may have other requirements not necessary for a conventional loan. Therefore, it is a good idea to check out the different types of loans out there and any credit requirements.
No matter the type of loan you apply for, though, remember to get a copy of credit report to dispute any errors or safeguard against identity theft. In addition to that, you can understand if you need to lower your credit utilization or take any other actions to raise your credit score to an acceptable level that will allow you to get approved for a mortgage loan at a good rate. As Millennials take advantage of good home prices in the Charleston, SC real estate market with affordable rates, managing these common mortgage issues will go a long way in helping them get through the process.