For most young professionals, the first few years of their careers are focused on establishing themselves in their chosen fields and building a firm financial foundation. However, as the first few years begin to pass, a longer-term view takes hold. Careers begin to stabilize, incomes begin to rise and a desire to transition from renting a home to owning a home emerges. But, perhaps as a result of reaching adulthood in the midst of the financial crisis, the desire to own may be overshadowed by doubts regarding the ability to qualify for a mortgage.
The first step to combatting the financing concerns of new, would-be homebuyers is getting educated. By working with an experienced loan officer, prospective buyers can evaluate their individual financial situation and gain an understanding of the many financing options that are available in today’s market. Often times this process involves dispelling common misconceptions about obtaining a loan.
Misconception #1. “My student debt means I shouldn’t even consider buying a home for at least a decade.”
This misconception is most commonly held among millennials. Student loans don’t bar you from securing a mortgage. Part of the importance of meeting with a lending professional is assessing the impact of things like student debt, any past blemishes on your credit history and your overall debt to income ratio.
In the scenario where your student debt or credit prevents you from securing a mortgage that fits your financial objectives, a loan officer can suggest strategies for improving your financial situation, which will enable you to enhance your credit worthiness over time.
Misconception #2. “I don’t think I can afford a down payment, so I’ll just continue renting.”
The biggest impediment for many first time homebuyers, including young professionals, is accumulating their down payment. That said, there are ways to work with your lending partner to develop a down payment strategy that works for you. Many programs exist to purchase a home with a down payment other than the standard 20 percent. For borrowers in high cost areas, there are even jumbo loan programs available with lower down payment options. Although these programs come with somewhat higher interest rates and, or, mortgage insurance, today’s low interest rates mean the all-in cost can still be attractive.
In addition to considering loan programs with reduced down payment options, we are also seeing parents assisting their adult children with down payments. In EverBank’s 2015 High Net Worker report, which covers financial preferences of affluent workers, nearly six in 10 high net worker parents said they would, or have already, helped their children with a down payment.
Misconception #3. “Securing a mortgage is the last step to buying a home.”
Many first time homebuyers view a visit with a loan officer as the final phase of buying a home. This can put them at a serious disadvantage when they do find the home of their dreams. By meeting with your loan officer before you hit the home listings, you can develop that holistic view of your finances and even get pre-qualified for a mortgage.
Pre-qualification will streamline the home purchasing process once you’re ready to make an offer. The added benefit of pre-qualification in highly competitive markets is that you can remain financially nimble even when other potential buyers are making cash offers.
Another advantage of doing your mortgage legwork before your house hunt is that you can be ready to lock in an interest rate once you find the perfect house. Some lenders will even allow you to lock in a rate while you shop for your home. Rate locks are usually offered for periods of 30 to 60 days, but under certain circumstances, you may be able to secure an even larger window to complete your home purchase. With the potential for an increase in interest rates in the coming months, a rate lock can offer peace of mind and certainty of interest payments down the road.
By consulting a home lending professional before they begin exploring homeownership, many first time homebuyers find there are options available to address their concerns. Even for those who determine they are not quite ready to take the step toward homeownership, a conversation with a lending expert can provide the information needed to create a pathway to their first home.