Young Adults and Mortgage Factors

mortgage

For many people who haven’t dealt with them in the past, mortgages and similar loans feel like the kinds of things only older adults deal with. Many people in their 20s simply don’t think they’re anywhere close to having the money it takes to own a home, and we often don’t even consider this as a realistic option until later in life.

At Altius Mortgage and our partners at Mortgage Ogden, we’re here to tell you that this isn’t the case at all. We’ve helped numerous buyers in their 20s get a head start on one of the biggest financial commitments they’ll make in their lives, including finding fantastic mortgage rates and great programs for first-time buyers. What are some of the factors you should be considering and prioritizing if you’re looking to own a home at a younger age?

Important Questions

A few vital questions you should ask yourself if you’re a younger adult considering home ownership:

  • Where do I want to live for the long-term? In some cases, people in this age range avoid buying a home in part because their life isn’t yet at a point where they’re comfortable settling down in a given city or state. If you’re going to get a mortgage at this age, you should be confident that you’re in an area you plan to be in for a while. Consider city and even town or neighborhood factors for your possible search areas well in advance.
  • Is my credit score high enough? Younger people have had less time to build up a credit reputation than older adults, and this could mean your credit score is lower. At the same time, if you’ve been active with your credit for a few years, you could be in very good shape. Any score above 660 or so is generally good enough to get into most strong mortgage programs, while scores under 600 are a concern.
  • Do I have enough saved up for a down payment? We’ll go over down payments a bit more below, and they’re a vital factor. Most first-time buyers spend at least a year or two saving up for a down payment, so you have to be doing some advanced planning here.

Getting Pre-Approved

Pre-approval is a process where you submit your financial information to a lender, who can assess it and give you an idea of the ranges of mortgages you can afford. Pre-approval factors include financial and property documents, along with personal documents and basic proof of identity. You can often use pre-approval letters to strengthen your buying position, as many sellers consider them valuable in the process. Make sure you have all your important items collected and up-to-date so you can get pre-approved and speed the process along.

Down Payment

For many first-time buyers, the down payment is very intimidating. But unlike what you might have heard, you don’t necessarily have to have 20 percent down available to get a great home – there are several programs that might allow you to come up with far less. Still, you should plan at least a year or two in advance to be saving up for this sum; even if you get great down payment assistance, this will still be the largest single lump sum you pay during the process.

For more on what you should be thinking about if you’re attempting home ownership as a younger adult, or to learn about any of our mortgage loan services, speak to the pros at Altius Mortgage today.

Basics on Credit Score and Mortgages

credit score basic

When you apply for a home loan from a mortgage lender, the lender takes various steps to examine your creditworthiness and ability to repay the money you’re asking for. One of the biggest tools used here is credit score, which was created by FICO (Fair Isaac Corporation) and uses information from your credit history and various financial files to come up with a single three-digit number that expresses your creditworthiness.

At Altius Mortgage and our partners at Mortgage Ogden, we can help you get a great mortgage loan with a variety of credit score ranges. Let’s go over some of the simple things you need to know about credit score before acquiring about a mortgage.

Basics and Calculation

Credit score is determined by using five categories, each of which has dedicated weights that determine how important it is to the overall equation. These categories, in order of weight:

  • History (35 percent weight): Things like late or missed payments will be big detractors from this section of your score, while consistent full and on-time payments will benefit you.
  • Utilization rate (30 percent weight): Your credit accounts will all have maximum credit limits – utilization rate refers to the percentage of these limits that you’re using at any given time. The more credit you’re using, the more your score could lower.
  • History length (15 percent weight): Another past area that’s important for credit score is how long you’ve had your various accounts open – the longer the better, as this shows a longer track record of repayment.
  • New credit (10 percent): Have you attempted to open new credit lines recently? If you’ve crossed too high a threshold here, red flags might appear.
  • Credit type: There are multiple types of credit out there, from standard credit cards to revolving cards, lines of credit or installment plans. Which you have on your record could affect your score.

Using the weights above, your credit factors are all crunched and then expressed in a single number that ranges between 300 and 850, with 300 being the worst and 850 being perfect credit.

Finding Credit Score

There are several online resources where you can get your credit score for free and without affecting the score at all. One good site is Annual Credit Report, but there are others. Be sure to check all information on your credit card for accuracy, as mistakes do happen and can be reported.

Ranges and Mortgage Qualification

Here’s a basic range of credit scores:

  • 800-850: Fantastic credit
  • 700-800: Very good credit
  • 680-699: Good credit
  • 620-679: Fair credit
  • 580-619: Poor
  • 500-579: Bad
  • Below 500: Very bad

If you’re in one of the higher ranges here, you’re in great shape for a mortgage. You’ll have lower interest rates available to you, as lenders are able to trust you more and don’t have to build in as much insurance against the risk of default or nonpayment. You can still get a mortgage with a lower credit score, but your options will be more limited and your rates will often be higher.

Improving Score

There are several ways to improve your credit score if it’s low, all of which relate to the calculation factors we went over above. Prioritize on-time payments and never miss any important due dates, plus keep the percentage of your overall credit used as low as you can. Don’t apply for multiple new accounts at once, particularly near a mortgage application, and leave older accounts open even if they’re paid off to show a lengthy history.

For more on credit score, or to learn about any of our other mortgage options, speak to the pros at Altius Mortgage today.