CreditCards.com

Fine print, Living with credit, Research, regulation, industry reports, Shopping

Young millennial renters: Start mortgage-prepping now!

Sienna Kossman
Preparing for home ownership

As temperatures rise and flowers bloom, many young consumers will be shopping for their first home.

Last fall, the majority of prospective homebuyers (53 percent) said they hoped to buy a home in seven months or more, indicating spring and summer 2017 will once again be popular home-buying seasons, a Realtor.com survey found.

But, if you’re a young millennial like me, home ownership may feel like a far-away dream. Realtor.com found that financing issues are more profound for first-time homebuyers, as 37 percent said they lack the funds for a down payment, and 28 percent know their credit scores need some improvement.

My boyfriend, Steven, and I want to ditch apartment life sooner rather than later. However, as he finishes graduate school and I’m still chipping away at student and auto loan debt, we’re not in the best position to apply for a mortgage, despite how much we grumble about paying rent each month.

In the meantime, we are taking small, incremental steps that will put us in a good position to buy our first home when we’re ready.

Whether you’re a debt-burdened, young millennial like we are, or just not financially prepared to buy a house this spring, you can start by getting your finances in order for a future home purchase.

Here are the steps we are taking to get mortgage-ready:

Set goals.
Steven and I don’t know where we will be purchasing our first home, but we do know that we want to buy a home in the next five years, probably shortly after we tie the knot (another to-be-determined date, but still on the horizon).

So, we decided that in five years, we want to have at least $25,000 saved to put toward a down payment on a fixer-upper (we watch too much HGTV). If we can save more, great! This gives us some structure and something to work toward without being too over-the-top.

Whether you are single or in a relationship, start thinking about what your own homebuying adventure may look like. If you outline some goals rather than just say “I want to buy a home before I’m 30,” the journey will feel a lot less daunting. Goals also will help you better manage your finances going forward, which brings me to the next step…

Start saving.
It sounds simple, right? If you guffawed and said, “No way!” I sympathize with you.

This was the most daunting step for me. When I looked at my student loan balance (even though it’s shrinking) and the rest of my bills, the thought of putting more money into a separate account for a future home we will buy who knows when, I hesitated. But, after thinking about our goals and my budget, I reminded myself that our home savings account balance doesn’t have to multiply overnight.

Start by digging all the coins out of your couch, pockets, purses and car cup holders. Take that change to the bank. You’ll be surprised how quickly it adds up! This is how we started, and our plastic grocery bag full of change amounted to almost $100! It all went right into savings, and that was enough to motivate us to keep saving.

Since our coin scavenger hunt, we’ve added several hundred dollars to our account, just by each of us contributing what we can at the end of every week. It’s much easier to save a little bit here and there rather than a large sum once a month. This also prevents us from spending extra dollars on unnecessary things, such as takeout dinners and Target home décor.

Today, about two months in, we have $603.34 saved. It’s not nearly enough, but it’s a start! Do what you can, when you can. You’ll be surprised how quickly the balance rises.

Check your credit reports and credit scores.
Don’t know what your credit score is? It’s time to find out. The better your credit score is when you apply for a mortgage, the more likely you are to be approved for a loan at the best interest rates. Our biggest weakness? Young account histories, which can only mature with time.

Last month, Steven and I both used annualcreditreport.com to ensure our credit reports are in order. They were, but if they hadn’t been, reviewing them regularly, well before applying for a mortgage, gives us time to correct any errors or signs of fraud.

Going forward we are both using my.creditcards.com to keep regular tabs on our credit health to ensure it remains in good shape prior to buying a home. You should do the same.

Reduce debt.
We don’t want to – and shouldn’t – take on more debt before paying down what we already owe. I recently upped my monthly student loan payment so I’m paying more than double the minimum due each month. Steven has an Amazon Visa card balance he is steadily reducing, and my car should be paid off by the end of this year.

Overall, we want to improve our debt-to-income ratios so we are looked upon more favorably by lenders. It would also be great to not have so many monthly debt payments to juggle by the time we take on a mortgage.

If you are carrying additional debt, especially high-interest card debt, revisit your budget and strive to knock out the debt as fast as you comfortably can. Paying off lingering debts also will boost your credit score, so it’s a win-win.

If you are a prospective homebuyer in a similar situation to mine, consider homeownership planning along with me this spring! Why not start now?!

Join the Discussion

We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, we ask that you do not disclose confidential or personal information such as your bank account numbers, social security numbers, etc. Keep in mind that anything you post may be disclosed, published, transmitted or reused.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company's business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.