Before purchasing their first home, younger homebuyers need to be prepared on acquiring a mortgage.
But many of them don’t know where to begin, and fear their credit scores may hinder their homebuying process. Douglas Boneparth, a certified financial planner who specializes in millennials and author of The Millennial Money Fix, on behalf of Experian is here to offer help.
“You can’t do anything until you know what and where everything is. You’re going to find out very quickly that there is going to be a rather robust request for financial info,” said Boneparth. “You don’t want to be scrambling for what a bank is asking for. How quickly you can gather your financial data is a great test to see how organized you are with your financial life and data.”
He suggested buyers begin by pulling credit reports and credit scores and reviewing reports to check what debt is there. Loans are also an important factor, including payment plans and who services them. Finally, they should make a list of all their assets, such as bank accounts, 401(k)s, IRAs and savings.
It’s also important to prioritize what is important. “A lot of factors contribute to many millennials not being able to afford a home, like the fact that wage growth is stagnant, while home prices have gone up. Many are saddled by student loan debt,” said Boneparth. “But you have to be honest with yourself regarding the priority of your financial goals.”
Boneparth suggested creating a timeline for homebuying, paying off student loans and other debts. To achieve these goals, sacrifices will probably need to be made. Creating a budget and tracking spending will help to determine where costs can be cut.
“Eliminating debt and making your payments on time are the two things you need to start doing consistently right away,” said Boneparth. “These two actions will have the biggest impact over time on your credit scores.”
Boneparth advised to not use more than 30 percent of available credit, and for best scores, keep it under 10 percent. Avoid opening new credit cards when applying for a mortgage, as it can bring the score down.
“That’s especially true for people who are right on the line between one score range and another,” said Boneparth. “Don’t let that store credit card be the thing that prevents you from getting the best rates on your mortgage.”
Finally, review your credit reports at least annually to keep tabs on where you stand. This is a good habit to have regardless if you’re applying for a mortgage.