Career & Finance

Millennial Home Lending: How To Get Pre-approved For A Mortgage

Only 1 in 3 millennials under the age of 35 owned a home as of the end of the year 2018 in America, according to the census report. Why is this number so low?


Millennials, unlike the previous generations, have unique circumstances that compromise their ability to access mortgage loans. Some of these circumstances include:


  • High credit standards: The median credit score in America is 695, while the median credit score for the millennials is around 668. Note, in the year 2019, the average credit score of the people who took out mortgage loans was 759, and only 10% of the lenders had a score below 647.


  • Crippling student loans: 61% of millennials said that they’d delayed homeownership as they concentrate on student loan repayment.


  • Unemployment amongst the Millenials is also pushing the debt to income ratio high amongst the millennials.


Despite these data, you can still own a home as a millennial. If people with a credit score of 647 obtained a mortgage loan in 2019, a significant number of Millenials, having an average rating of 668, can still get a mortgage loan.


The first step should be to get pre-approved for a mortgage loan. Here are the reasons why you should get pre-approved.


  • When you get pre-approved for a mortgage, you know your budget. This will guide you when you are house hunting.
  • The home sellers will know that you’re a serious buyer since you’ve already visited a lender.
  • You’ll understand whether you are ready to acquire a home mortgage and if you need to straighten up your credit issues before seeking a mortgage loan.


For you to get pre-approved for a mortgage, you need the following things:


  1. Proof of income

You will be required to produce your w2- wage statements and any other documents that will help the lender to understand your income flow. If you’re self-employed, you’ll be required to produce form 1065. Also, you’ll be required to provide your 30 days pay stubs to show your current income.


These documents help the lender understand how much cash flow you can afford to direct towards payments after catering for your bills and debt payments. 


  1. Proof of asset

The lender will also require proof that you can afford the downpayment necessary. Therefore, you will be required to produce bank statements and investment account statements. However, this depends on which loan you will be seeking. Jumbo loans are custom made for low to moderate and first time home buyers. They, therefore, require a very low downpayment. The VA loan requires no downpayment from the veterans.


If you’re receiving money from a friend or a relative for the downpayment, the lender will require a gift letter explicitly explaining that you’ll be receiving the payment for the downpayment.


  1. Good credit score

The higher the credit score, the better interest rate you will be given, and the lower the downpayment you will be required to put down. If you have a credit score of about 580 and above, you generally qualify for a low-interest rate. However, if you are on the lower end of the credit score, you will be required to put down more downpayment. If you have a credit score of above 700, you easily qualify for a 3.5% interest rate.


The lenders will, therefore, pull your credit score from all the three credit bureaus. They will also check your payment history to determine whether you make your payments on time or not.


  1. A healthy income to debt ratio

The lender will also calculate your debt to income ratio. They will take into consideration your student debt, credit card debt, auto loans, and any other debt that you have against your income and assets. 


Therefore, it’s vital to ensure that you pre-check your credit score and make any corrections on the report before approaching the lender for pre-approval.


The debt to income ratio is calculated by dividing your total monthly repayments with your income. The highest possible percentage you should have to still qualify for a mortgage is 43%. However, most lenders prefer a ratio of 36%, with no more than 28% going towards repaying the mortgage.


In conclusion, to get the best deal, shop with several lenders. Note, visit all your preferred lenders within 45 days so that all the credit inquiries are recorded as one hard inquiry. Otherwise, they might negatively affect your credit score. Also, remember, getting pre-approved doesn’t guarantee that you’ll get a loan. It depends on whether the information you provide is truthful and remains so before the loan closes. 


By Tesh

I am a simple person, very warm and willing to give people second chances. My principle is be better than you were yesterday and never compromise on your happiness. Simply love yourself first.

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