Buying a home has always been exciting, but it can also be a daunting experience. As a millennial interested in purchasing a home in Lexington, KY, it is important that you become educated on some facts such as the average price of a home in Lexington, the importance of your credit score in obtaining your mortgage, the options available to help with down payments or closing costs and the truth about the effect of student loans on your income to debt ratio. Read on to learn more about buying your dream home in the Lexington, KY real estate market.
Question 1 – Can You as a Millennial Afford to Buy a Home in Lexington, KY?
The first thing to consider when buying a house in Lexington, or anywhere else, is to find out what the average or median price for a new home is and to see if you can afford it.
According to a recent survey, there has been an increase of $7000 in the median price of a home sold in the Lexington, Kentucky real estate market over the past year.
This price increase has been reflected in an increase of the average price per square foot to $135 making the average price for a 2 bedroom 2 bath house in Lexington now $152,000.
This average price is much lower than in many other parts of the country, and so the good news is you are shopping for a new home in a city where the price of a home is certainly within reach.
Question 2 – As a Millennial Do You Fit the Median Age for First Time Home-Buyers in Lexington, KY?
The median age for first time home buyers in the United States has been constant for the last four decades.
In the years from 1970 to 1974, the median age for first time home buyers was 30.6 years old.
In 2015 the median age for first-time homeowners was 31 years old.
As a millennial, if you have not yet reached the median home-buying age of 31, it is certainly reasonable that you may just be waiting for things to stabilize in your life before purchasing a home.
In fact, according to statistics, approximately 22% of millennials are under the age of 25 and so if you fit into this category you are at least six years from the median age where you would be expected to buy a house. Therefore, there is certainly plenty of time to plan and save for your first home purchase.
Question 3 – Should You be Discouraged About Buying a Home if You Have Been Renting for a Number of Years?
If you have been renting for an average of 6 years before purchasing a home, this is only one year longer than the average time of renting before buying for all renters, which is five years.
Being a long-time renter does not preclude being able to purchase a home.
Question 4 – Does Home Ownership Have Many Advantages for You as a Millennial?
As a millennial homeowner, you will have many advantages over apartment living, including:
- An increased ability to have control over the design and set up of your living space
- Having increased privacy and security
- Having the ability to live in a more upscale living environment
- Having the ability to own a home and participate more in the social aspects of your community
- Having increased flexibility in determining your own housing future
Question 5 – As a Millennial Can You Can Still Purchase a Home with Low Credit Scores?
One of the main reasons millennials who are currently renting give for not purchasing a home is that they do not have an adequate credit score to obtain a mortgage.
Estimates are that 33% of millennials have credit scores below 620.
Currently, the median credit score for a conventional loan (a conventional loan is a loan not backed by the government but by a company like Fannie Mae or Freddie Mac) is 750.
The average credit score for a conventional loan is 640.
The accepted industry standard minimum credit score for conventional loans is 620.
The absolute lowest minimum acceptable credit score for a Fannie Mae backed loan is 580.
For FHA (Federal Housing Administration) backed loans, the minimum credit score that is acceptable to be approved for a loan is 580.
Some people have even qualified for an FHA loan with a credit score of 500.
The average FICO (credit) score for an FHA backed loan is 688.
For Veterans Administration (VA) backed loans for veterans and active-duty members of the military, the credit score requirement is usually 620.
In essence, there are many programs for mortgages for millennials that will accept you even with lower credit scores.
Question 6 – Can Down Payments for a Mortgage be Lower than You Think?
As a millennial, if you are not clear on the requirements for down payments for a mortgage, you might erroneously believe that you cannot afford the closing costs or down payment.
Conventional home loans backed by Fannie Mae or Freddie Mac usually require a down payment of 3%.
FHA backed loans typically require a down payment of 3.5%.
VA backed loans often can require a 0% down payment.
A Fannie Mae survey conducted in 2015 found that 42% of millennials surveyed in the age group of 18 to 34 did not have a clear understanding of the amount of down payment required to qualify for a mortgage.
In addition, the survey found that 73% of millennials did not know that options exist for lower down payments ranging from rates of 0 to 6 % which are much lower than the 20% down payment commonly required by conventional lenders.
It was also found that many millennials were not aware that if they had poor credit ratings or were first-time homeowners that they still qualified for down payments of from 0% to 6%.
You should be aware that approximately 30% of all home purchasers put down less than 3% of the price of the home as a down payment.
Question 7 – Have Most Millennials Saved Enough for a Down Payment on a New Home?
According to a study by Fannie Mae and the Federal Reserve Bank conducted in 2015, it was found that the majority of millennials had not yet saved the $13,820 necessary for the 6% down payment as required to purchase an average starter home.
According to this study, it would take you six years to save a 6% down payment for an average starter home priced at $190,000.
Question 8 – Does Your Debt to Income Ratio Preclude Home Ownership?
The debt to income ratio refers to a comparison or ratio of a household’s amount of debt to the amount of income which lenders use to determine an applicant’s creditworthiness.
This ratio can be determined by adding up all monthly debts including rent payments, student loan payments, auto loan payments, credit card payments, alimony and child support payments and dividing this number by your total gross monthly income.
This number is then converted into a percentage, which is the final debt to income percentage.
Lenders then divide the debt to income ratio into two parts: Front-end ratio (housing ratio) and Back-end ratio.
The front-end or housing ratio determines how much of the gross monthly income would go for the mortgage payment, for property taxes, for homeowners insurance and HOA (homeowners association monthly fees) monthly dues.
The back-end ratio determines the amount of your monthly income needed to pay all monthly debts, including all mortgage payments, all housing expenses, and all monthly debt payments.
According to Knight Financial Services, most millennials like yourself have a debt to income ratio each month of 32%.
The good news is that this falls right within the ratio that the majority of lenders look for when considering an application for a mortgage.
Therefore, as a millennial, you are not usually prevented from obtaining mortgages even if you have a poor debt to income ratios.
Question 9 – Will Your Student Loan Debt Stop You From Buying a Home?
According to an analysis done by the Federal Reserve, 42 % of millennial households have student debt with 35% having debt from vehicles.
The median debt for millennial student debt was found to be $17, 200 with vehicle debt levels at $11,000.
This amount of student debt should not usually prevent you from obtaining a mortgage.
As a millennial, you face the same daunting concerns as the rest of the American population when assessing your possibilities of buying a home. Home prices continue to rise, especially in a desirable place to live where many are unable to compete in inflated markets. You may think that even though having your own home has many desirable benefits, that having low credit scores or lacking down payment funds may make obtaining a mortgage impossible. Fortunately, this is not the case, as there are many options for lower down payments and closing cost assistance. The facts are that most millennials like yourself do generally earn a sufficient salary to afford a mortgage payment and also have an acceptable income to debt ratio to qualify for a home loan. Finally, as a millennial homebuyer living in the Lexington, KY area, you have the added advantage of reasonable average new home prices which can be accessed with a good qualified lender and realtor.