Courtesy of Gene Mundt, Portfolio Mortgage, Chicago.
Credit … Credit Scores … they’re a big issue, no matter someone’s age …
But for Millennial-age hopeful home buyers, credit-related issues are of particular interest and importance these days. I’ll add they may be a bit frustrating too …
It’s been very well-documented: The job market and financial problems have dogged Millennials.
As a result, many have poor credit. Or have avoided accumulating debt entirely. They pay cash for every purchase or bill they have.
Each credit issue presents its own challenge. Decidedly so when they decide to buy a home.
The challenges associated with bad credit are fairly obvious. For those Millennials that have established no credit? They’re often mystified, as the challenges they face seem to defy old-fashioned credit logic.
How’s that?
Today’s credit reality is: You must already have credit to successfully gain more credit to buy a home.
How that’s best accomplished:
- If there is absolutely no credit/no credit card, obtaining a Secured Credit Card is a good first option.
Secured Credit Cards can be established with deposits of smaller amounts of money … often as little as $250 to $500 … at a bank, credit union, or online Creditor. Money is deposited at the bank (or credit union) and held in an account used to back the secured card.
- Acquire a Credit Card. Opening/using a Credit Card remains the easiest and fastest way to establish and build credit.
Fact: Establishment of 2 (sometimes 3) forms of trade-line/credit (Revolving, Student Loans) is needed by home buyers prior to applying for Mortgage, in most cases.
While the Down Payment made on a home purchase (plus others factors associated with the individual applicant’s borrowing scenario) may effect the length of credit history demanded prior to application for Mortgage, typically each line of credit must be 1-year old or more. Those timelines may be shortened with larger down payments of 20% or more.
It’s also important to:
- Keep credit balances low. (30% of available credit limit is optimum. 50%, including finance charges, is maximum)
- Make all payments on time.
- Establish Credit Cards/Credit History well in advance of applying for a Mortgage. (A minimum of 6 months of payment history is needed before credit agencies even report them. It takes time to establish a “documentable” history.)
- Don’t co-sign for someone else’s loans, leases, credit cards, cell phones, etc.
Co-signing is an issue that seems to crop-up fairly often for Millennials. And while I understand the emotional tug of helping a friend or family member, they must resist.
Too often, co-signing causes severe damage to an Applicant’s Credit Scores. Damage that creates additional credit issues to be addressed/resolved and possible derailment of home buying dreams (at least in the short-term).
For Millennials dreaming of buying a Chicagoland home in the future, it’s wise to start on establishing credit now. Ask your questions and take action soon.
Gene Mundt is a 30+ year veteran of the mortgage/banking industry, with extensive knowledge and experience in mortgage and credit services, management, and real estate appraising. He is also an IL Certified Financial Planner. This unique combination of education, experience, and expertise affords him more complete and in-depth resources from which to service his clients and their needs.