Homeownership is down nationwide—a trend that is largely attributable to the younger, millennial population’s reluctance to buy. This shift reflects a number of factors, including the unstable and rapidly changing job market, soaring student loan debt, and the higher median age at marriage. Taken together, these variables have dramatically changed the housing market. According to the US Census, homeownership among millennials dropped to an all-time low of 36% in 2014. But new data suggests that it would be in this generation’s best interest to invest in homes rather than continue to rent.
The good news is that many of the misconceptions about owning a home are simply not true—buying and owning a home is easier than ever. Here’s why:
Credit standards are lower than you think
One of the barriers preventing young people from investing in a home is the belief that they need a perfect credit score in order to apply. While having a higher credit score will always give you more options, the reality is that there are many ways to get approved for a mortgage with less-than-perfect credit. Government-backed loans from the Department of Agriculture, the Department of Veterans Affairs, as well as the Federal Housing Administration (FHA) offer mortgage packages that are designed to accommodate individuals with lower credit scores and/or income.
On top of that, the required down payments can also be much lower; FHA loan down payment requirements can be as low as 3.5% compared to the traditional 20%. Ultimately, these resources make it possible for individuals who do not have a typical “homeowner” to be able to invest in a home.
Monthly mortgage payments are often lower than rent
There is a widespread misconception among millennials that owning a house is more expensive than renting. But according to data reported by the finance website GOBankingRates.com, it’s actually cheaper on average in 42 states to own a home. The distribution of monthly payments across the US showed that paying rent was shown to be economical in only 8 states.
But the cost is not the only factor that should go into the decision. Paying monthly rent to a landlord is essentially throwing money away—you are not investing in an asset that could increase in worth. Usually, when you factor in the projected resale value and tax breaks you receive from being a homeowner, buying a home makes much more sense financially compared to renting.
Individuals with student loans can still afford a home
One of the main concerns for young people is whether they will be able to afford monthly mortgage payments in addition to student loan payments. Student debt is at an all-time high nationwide, and the monthly payments can be crippling. Luckily, there are more resources than ever to help make homeownership affordable despite the recent increase in student debt. State agencies have started to offer discounts on mortgage rates, assistance for down payments, and resources to help first-time homeowners throughout the process, and extra assistance is available to those with student loans, veterans, or public servants.
The requirements for qualification vary state-to-state, as well as by lender and location, so make sure to consult with a professional about your options before deciding how to finance your home.
You can apply online
The process of applying for a mortgage has changed dramatically in the last decade. Before the housing crisis in 2008, the larger banks that once handled the majority of mortgages increased their requirements for applications and became hesitant to approve clients with low credit scores. Many of them no longer offered the more affordable Federal Housing Administration (FHA) loans that offered mortgages at lower rates and down payment requirements. This was a crippling shift for many young, first-time homeowners without the capital to buy a home from traditional lenders.
In response, there has been a movement toward online applications that give prospective homeowners more options and greater flexibility. Called “mortgage marketplaces,” these sites allow clients to enter their financial information online and receive information about their eligibility quickly. They can also review a number of lenders and rate options before consulting with a bank or advisor. In addition to making the application process smoother overall, these marketplaces have introduced more transparency to the process and ultimately contributed to making homeownership affordable.
Applying online means less paperwork
Before the mortgage marketplace movement, applying for a home loan involved compiling mountains of paperwork, coordinating many in-person visits, and long delays in processing. Now that the majority of the process can be completed online, applying for a home loan is dramatically simpler. Prospective homeowners can access educational information online before starting the process, complete the application online, and receive multiple lender options so that they can make informed and careful decisions. There has never been a better time to get a mortgage and become a homeowner!
Take the first step in your home buying journey by filling out our simple, 100% online application.