If you are a Millennial trying to buy a new home and get a mortgage, you may have an easier time of it now that Fannie Mae – the country’s largest mortgage lender – has eased its debt-to-income (DTI) requirements for millennial mortgage borrowers. Instead of a debt ceiling of 45 percent, including student loans, auto loans and credit cards, Fannie Mae now allows that ratio to climb to 50% so that homebuyers can more easily qualify for a mortgage. This won’t make the process of landing a home in this overheated market any easier, but at least you’ll have a little more latitude in placing your bid.
The change came about after long-term studies by Fannie Mae demonstrated other positive attributes among Millennial buyers, such as savings reserves and high credit scores. Applicants still will be vetted individually by Fannie Mae, so a mortgage approval is still not a slam-dunk; the down payment amount, loan-to-value-ratio, and a host of other factors also come into play.
The Benefits of FHA Loans
A visit to the FHA (Federal Housing Administration) website (fha.gov) shows that it too offers some great options for Millennials. A government agency designed to promote home ownership, the FHA acts as a federally-backed insurer to its network of approved lenders. This means that if a borrower fails to make timely loan payments, the federal government will step in and cover the bank’s losses. Compared to conventional mortgages, FHA-backed mortgages are typically easier to obtain, requiring down payments of as little as 3.5 percent, which greatly improves a Millennial’s chances of qualifying.
Another great benefit of FHA loans is that there are no income limits – either on the high or low end – even though this program is heavily slanted toward first-time buyers. DTI ratios can climb as high as 55 percent, and buyers with credit scores as low as 580 can still be accepted. On the flip side, FHA loans carry a requirement for mortgage insurance, which can add up to the point where private mortgage insurance would actually be cheaper. In addition, FHA funding limits may preclude you from buying that roomy dream home in the suburbs.
Minimum Down Payment of Only 1%
More good news for Millennial mortgage-seekers: a new program actually makes it possible to put only one percent down – unheard of in years past when 20 percent was the norm. Also, tighter regulations instituted since the mortgage meltdown of the late 2000s prohibit predatory lending practices such as teaser rates, prepayment penalties and excessive up-front fees, which can easily land buyers in hot water.
100% Online Millennial Mortgage
With today’s technology, borrowers can even obtain their mortgage online without ever stepping foot inside a bank. Online mortgage brokers such as RateJab allow lenders to pull W-2 forms, pay stubs and bank statements electronically – resulting in a lot less paperwork for everyone involved. For more info on the home loan process, please check out Getting a Mortgage is Easier Than You Think.
Millennials may have become accustomed to endlessly low interest rates, but the rest of us know that what goes up must come down and vice versa. If you haven’t taken advantage of these low rates yet, it might be time to climb on board.