In September, a Lending Tree survey found that 48 percent of renters were worried that they will never be able to afford a home of their own in the future. The survey comes on the heels of a few sobering months for first time homeowners in the housing market as the gap between housing demand and supply continues to widen- and house prices continue to rise across the country. The concern and uncertainty about the future as homeowners was particularly prevalent amongst millennials (25 to 40 years old). According to the survey, 52 percent of Generation X renters and 52 percent of millennial renters said they were worried about their future as homeowners. The story is not a new one either: younger Americans are facing an increasingly difficult time getting started as a homeowner due to challenges with securing adequate financing, building up their credit profile and affording the monthly payments.
Lower Your Rent, Bump Up Your Deposit
It is not just house prices that are soaring. Rental prices have increased steadily in recent years and it can easily price you out the homeownership market. Apartment Guide’s Rent Report For September, 2021 found that rental prices have increased by 10 percent compared to year on year averages- for both long and short term rentals. As of September, 2021 the average rent for a 1 bedroom apartment was $1,663 (2.4 percent increase from August, 2021). With the median monthly household income hovering around $ 67,521 for 2020 it can be tough to afford a down payment on a home right now, particularly as market prices soar.
To combat this and improve your chances, consider ways to reduce your monthly outgoings such as rent. One option is to move to a city where rents are lower like Houston, Texas or Tucson, Arizona. Other tricks to reduce your rent include considering a roommate (or sublet) and checking local rent guidelines for the stipulated market rental rates. Are you overpaying based on your location? Being able to save up a bigger down payment means you can improve your chances of mortgage approval and even get a better interest rate. For instance, homeowners who cannot afford a 20 percent deposit often have to pay private mortgage insurance (PMI).
Spend 6 months Building Up Your Credit
Your credit score is critical for mortgage applications. The issue for younger Americans today is that many of them have found that their credit profile has been impacted by large student and credit card debt, or has not been well established as yet. Therefore, it is always recommended that you give yourself at least a 6 month timeline to work on improving your credit score. When it comes to boosting credit score, simple changes like making payments on time and paying down your debt to keep your credit utilization low are quite effective. If you are unsure of your credit score, you can access a free annual credit report from annualcreditreport.com.
Do Your Research
Younger Americans are delaying homeowners due to the mounting levels of student debt and tighter mortgage requirements they are facing. However, there are programs designed to help first time buyers get on the property ladder These can take various forms including grants, loans and federal financial assistance programs. There is the Federal Housing Administration loan program which is good if your credit score is low or you have not been able to save a large deposit. As a first time buyer, you will need a credit score of at least 580 and a 3.5 percent deposit. However, deposits of less than 10 percent will attract the cost of FHA mortgage insurance.
Another alternative is the Good Neighbour Next Door program which is aimed at those working in the public service such as teachers and firefighters. You will however need to purchase a preapproved home which you can view on the Good Neighbour Next Door website.
Getting on the property ladder as a younger homeowner may seem increasingly difficult but it is possible. With some research and taking the time to prepare your finances, you can not only boost your chances of being approved for a mortgage but make the move from renting to owning.