Millennials and Housing: What You Need to Know/ December 26th, 2019
For some years, millennials put off homeownership because of their exorbitant student debt. However, things have changed. After a few years in the workforce, working their way up the ladder and earning higher salaries, many millennials have taken their first steps into the housing market. Today, they make up 46% percent of the mortgage market share.
Of those who still live in rentals, over half say it is because they don’t know enough about homeownership and mortgages. If you fall into this camp, here are terms and concepts to understand that will help you become a successful homeowner:
- The difference between being prequalified and preapproved. Prequalification simply involves a rough calculation of the mortgage payment you can afford. Your credit union lender can help you with this. Preapproval means you're essentially good to go. You formally apply for the mortgage and pay an application fee. The lender determines that you are eligible for a mortgage of a certain amount. It's called preapproval, rather than approval because, before making a final commitment to you, your lender must verify your information regarding employment and salary;
- The difference between a fixed-rate mortgage and an adjustable-rate mortgage. With a fixed-rate mortgage the interest rate stays the same throughout the life of the loan, typically 15, 20, or 30 years. Your monthly payment will remain the same during that time. With an adjustable-rate mortgage (ARM) the interest starts at a lower level and then may go up or down at specified intervals. The most common is a 5/1 ARM which has a fixed rate for 5 years, then resets once per year, going up or down. A lender at your credit union can suggest the best option for you;
- The difference between an appraisal and inspection. An appraisal determines a property's market value. An objective appraisal assures the lender that the property's value is at least equal to the mortgage amount. Note that a real estate agent's market valuation is not equivalent to a formal appraisal. A home inspection examines the condition of the house and its mechanicals. The purpose is to protect you, the buyer, from nasty surprises. Hire a professional inspector and ask for references;
- Closing costs. No later than three days before closing, your lender will provide a statement showing you the final figure and a breakdown of all the costs (you will get an estimate shortly after your loan is approved). Look over the statement to be sure all is in order. Usually, you'll need to provide a cashier's or certified check for the closing amount (plus the down payment) at the closing; and
- Insurance needs. If you own a home, you have the potential to suffer property damage or liability loss. Ask your credit union lender and insurance agent about: homeowners' insurance, private mortgage insurance, title insurance, mortgage life insurance, and flood insurance. Insurance needs will vary for each individual homeowner.
Your credit union will be happy to go over all of these terms in more detail and help you get a mortgage to fit your budget.