Advice for Gen Zers and Millennials who want to buy a home
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The low interest rate environment we experienced in 2020 and 2021 made it the perfect time to enter the housing market and secure a reasonable mortgage despite the simultaneous increase in house prices.
While those who were lucky enough to take advantage of this rare opportunity likely had savings on the sidelines to help them buy their new home, others, including many Gen Z and Millennials, don’t weren’t even close to being financially ready to own.
A Bankrate Survey 2022 cited affordability as the top barrier for Gen Z and Millennials when it comes to owning a home. Whether or not you’re financially in a good position to buy a home right now, Select takes a look at some things you can do in the meantime to prepare.
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Improve your credit score
Your Credit score plays a huge role in the interest rate you will receive when you apply for a mortgage. Although some mortgage lenders like rocket mortgage and CitiMortgage® offer options that cater to people with lower credit scores, it’s more beneficial to improve yours before submitting an application. The higher your credit score, the lower your interest rate will be, which can save you thousands of dollars over the life of your home loan.
Annual Percentage Rate (APR)
Ask online for personalized rates
Types of loans
Conventional Loans, FHA Loans, VA Loans, and Jumbo Loans
8 to 29 years old, including 15 years old and 30 years old
Generally requires a 620 credit score, but will consider applicants with a 580 credit score as long as other eligibility criteria are met
3.5% if you go ahead with an FHA loan
“Checking your credit score early and ideally before you seriously start buying a home will give you the opportunity to improve it, if you need to,” says Liz Ewing, chief financial officer of Marcus of Goldman Sachs.
Continuing to pay your bills on time and not making late payments — or missing payments — can also impact your credit score, if not help raise it.
“A recent report from List of apartmentsa rental platform, found that two-thirds of aspiring millennial homebuyers haven’t been able to save enough money for a down payment on a home,” says Ewing.
A down payment is a lump sum of money that is paid up front when you buy a house and is usually part of the total value of the house – the home loan you take out covers the rest of the value of the house.
The down payment you will need to make varies depending on the price of the home and the type of loan you are applying for. For example, if you want to apply for a jumbo loan, you will need to put down a deposit of 10-20% of the value of the house. If you wanted to take out an FHA loan, however, you would need to put down only 3.5%.
Determining the type of loan you want can help you determine how much money you’ll need to save for the down payment. You’ll also want to consider your current expenses versus what you can afford to pay for a mortgage.
Keep in mind that the lower your down payment, the higher your monthly mortgage payments will be. If you already have high monthly expenses – say you’re providing financial assistance to a family member or have to take care of a huge student loan repayment – it might be worth investing more money in. your down payment in order to have a slightly lower mortgage payment each month.
“By considering the down payment, your income, expenses, and current debts, you can set a savings goal and develop an action plan to reach that amount,” says Ewing.
Know where to save your money
High Yield Savings Accounts offer an easy way to save money while earning above average interest rates on your balance. In other words, these accounts can grow your money without having to invest it. And the higher your balance, the more interest you’ll earn.
“When deciding where to save money, consider banks and banking platforms that offer competitive interest rates to help your money work as hard as possible,” says Ewing. “It may be worth considering opening a high-yield savings account just for your down payment and setting up automatic direct deposits into the account on a monthly basis to save the money before you have the ability to spend it.”
Select ranked on Marcus by Goldman Sachs High Yield Online Savings as the best free account. The SoFi checking and savings account is another great option, as it offers an attractive welcome bonus after you set up and receive direct deposit payments, allowing you to earn between $50 and $300, depending on the amounts of your direct deposits, within a 30 -day period.
Goldman Sachs Bank USA is a member of the FDIC.
Annual Percentage Yield (APY)
The minimum balance
None to open; $1 to earn interest
Up to 6 free withdrawals or transfers per statement cycle *Cycle withdrawal limit of 6/instructions is waived during the Coronavirus outbreak under Regulation D
Excessive transaction fees
Offer a current account?
Offer an ATM card?
SoFi Checking and Savings
Information about Sofi Checking and Savings has been independently collected by Select and was not reviewed or provided by the issuer prior to publication.
Monthly maintenance fees
Minimum deposit to open
The minimum balance
Annual Percentage Yield (APY)
Members with direct deposit earn 1.80% APY. Members without direct deposit will earn 1.00% APY.
Network of free ATMs
More than 55,000 free ATMs within the Allpoint® network
Reimbursement of ATM fees
Free overdraft coverage is available; however, SoFi requires $1,000 in monthly direct deposit entries to unlock it
Mobile check deposit
Another important (but less talked about) way to save money is to use a certificate of deposit or CD. This type of savings account holds a fixed sum of money for a fixed term and in exchange, you will receive the interest paid on your balance. Although CDs generally pay higher interest than a high-yield savings account, keep in mind that you will need to adhere to the holding period set by the issuer of the account.
Ewing recommends exploring CD accounts if you don’t plan to start your house hunting for several months or years. The Ally Bank High-Yield CD Account offers terms ranging from three months to five years, and is definitely worth considering.
Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff only and have not been reviewed, endorsed or otherwise endorsed by any third party.