By Scott Baughman
BridgeTower Media Newswires
CHARLOTTE, NC — According to a survey conducted by loanDepot, 52 percent of millennials (born between 1981-1997), cite no longer wanting to pay rent and being ready to start a family as two top drivers motivating them to start looking into home ownership. However, half of those surveyed are anxious about the expense of real estate and mortgage payments, with only 18 percent saying they think a home purchase is affordable for them.
As for barriers to entering the housing market, millennial renters are concerned about having enough money for a down payment (63 percent), knowing where to start the process (48 percent) — with 56 percent saying they’d start with a Google search — poor credit history (43 percent), and too much existing debt (38 percent).
“It’s clear from the survey results that millennials have a lot of anxiety built up about the home-buying process,” said David Norris, loanDepot’s Head of Retail Lending. “There is good news, however, as there’s more flexibility than most millennials think regarding how to qualify for a loan and what’s needed for a down payment.”
Of those surveyed, 49 percent currently have a home mortgage, yet just 27 percent said they felt knowledgeable about the home purchase process when they began. For those who’ve already made the jump to homeownership, they wished they’d known more about interest rates (55 percent), types of loans available (47 percent) and how the pre-approval process worked and what down payment they’d need (45 percent each) before setting out.
loanDepot, America’s lender, has more than 1,700 licensed lending officers who work with thousands of millennials each week, offering tips to help demystify the home buying process.
Top tips for millennials from loanDepot lending professionals around the country include:
Know how much is needed for down payment
According to survey results, millennials are unsure how much down payment they need to put down, with the average coming out to 32 percent. And while the industry standard is typically 20 percent down payment, there are other options.
John Pearson, a loanDepot licensed lending officer based in Hoboken, N.J., says there are many programs for first time homebuyers (FTHB) that allow them to finance a property with 10 percent, 5 percent, or even 3 percent down. There are also loan assistance programs offered by FHA that many don’t realize their can qualify for.
“The best advice I have for young buyers is to not believe everything you read on the Internet,” Pearson said. “When talking with a professional, you can discuss your specific financial situation and the lending officer can help you determine how much down you’ll need and what a monthly mortgage payment will look like. You’ll probably discover you don’t have to wait until you reach the point of a 20 percent down payment.”
Don’t be surprised by closing costs
According to Marc Bui, retail lending manager for loanDepot in Newport Beach, Calif., many millennials he works with don’t realize there are costs beyond the down payment required to close.
“When I’m working with today’s youngest buyers, I help them plan for all final costs, which can include HOA (homeowners’ association) fees, property taxes, private mortgage insurance (PMI) for those putting less than 20 percent down, title, appraisal, etc. It’s important to understand everything that goes into closing so there are no unpleasant surprises,” Bui said.
“The advice I have for people who are a year away or less from buying a home is to get pre-qualified and seek out lenders who are knowledgeable
with FTHB programs,” Bui continues. “Many people I speak with would have left a lot of money on the table because a lender didn’t offer programs such as mortgage credit certificates (MCC) or state programs like CalHFA loans in California.”
Include parents but listen to professionals with an open mind
About 54 percent of millennials say they plan to ask their parents about how to buy a home, with slightly fewer at 52 percent saying they’d first turn to a mortgage broker or company.
“It’s great when young home buyers include their parents in the process,” said Scott Nadler, a top 1 percent licensed lending officer in the U.S. and based in loanDepot’s Manhattan office. “When young couples come to me wanting to buy their first home, many times I’ll suggest a 7- or 10-year adjustable mortgage, which allows them to build equity while having a lower monthly mortgage payment. Many parents are nervous about adjustable mortgages but if someone plans to trade up in a few years, they will be out of the mortgage before the adjustment. My best advice for millennials is to make sure they feel comfortable with the product they select.”
Student loans may not prohibit a home loan
According to the Urban Institute, student loan debt has increased sharply over the last decade and has surpassed credit card debt. This stressor is a top concern for millennials who are interested in purchasing a home in the near future.
At the end of April, Fannie Mae announced three policy changes designed to help prospective homeowners struggling with student-loan dept. Two changes help borrowers with high student-loan debt qualify for mortgages while the other policy change helps homeowners refinance their home to pay down their student loans.
• Debt paid by others: This change widens borrower eligibility to qualify for a home loan by excluding non-mortgage debt, such as credit cards, auto loans, and student loans, paid by someone else, such as parents.
• Student Debt Payment Calculation: This change increases the odds that borrowers with student debt will qualify for a loan by allowing lenders to accept student loan payment information on credit reports.
• Student loan cash-out refinance: Fannie now offers homeowners the flexibility to pay off a high-interest rate student loan while potentially refinancing to a lower mortgage rate.
“Some lenders have special programs for borrowers with certain types of student loans, such as loanDepot’s loan for medical professionals,” said Mary Bane, vice president, regional production for loanDepot in the Chicagoland area. “Medical professionals with student loans that have been deferred for 12 months or longer can avoid having that debt repayment counted as part of their debt. The assumption is that their income will increase dramatically so they will pay off the debt quickly as soon as they are fully employed.”
Another potential option is the 40-year mortgage loan program from loanDepot that requires 10 percent down payment and good credit, but has a 10-year interest-only initial repayment period that could help borrowers tackle their student loan debt while they make lower mortgage payments. The following 30 years are fully amortized.
Technology to streamline the process
Being digital natives, millennials want and trust the online experience. loanDepot’s mello™ is a proprietary digital lending platform that includes an intuitive web-based consumer portal, a state-of-the-art mobile point-of-sale system, and a fully-digital mortgage loan application experience. Coupled with access to licensed loan consultants in the 180+ retail locations, millennials can choose how high touch or high tech (or a combination of the two) they want their experience. mello is part of the company’s $80 million investment in its technology over the last 18 months.
“I’ve found that many millennials are most comfortable using digital tools,” said Ryan Friend, a lending specialist based in Grants Pass, Ore. “But interestingly enough I find they are far more trusting if we’ve started the relationship in person. It’s the firm handshake and honest eye contact coupled with our digital-first technology that provides loanDepot with high marks in consumer experience.”
