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Best Mortgage Programs for Millennials

Best Mortgage Programs for Millennials

Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience
, Trusted Mortgage Expert with 45+ Years of Experience
Millennial home buyers have a wide range of mortgage programs available to them but there are several programs that are especially well-suited for this unique generation.  Millennials have been slower to enter the housing market for several reasons but the inability to save for a down payment stands out as one of the biggest obstacles to buying a home.  Low and no down payment mortgage programs offer a way for millennials to overcome this challenge and make owning a home more achievable.

The millennial generation is also defined by shifting family and social structures.  As millennials have come of age, we have seen an increase in the formation of multi-generational households.  Whether it is for financial reasons or family duty, more millennials are living with their parent and grandparents.  Additionally, the generation that cultivated the sharing economy is more willing to open their homes to friends and strangers.  This is why mortgage programs that reflect the rise of multi-generational households and the emergence of the sharing economy are highly applicable to millennials.

Another defining attribute of millennials is their reduced use of traditional credit.  They tend to have fewer credit cards and loans (except for student loans) which means their credit profiles may be less developed.  For this reason, programs that permit the use of non-traditional credit profiles are particularly relevant to millennials.  

In sum, a low or no required down payment, flexible qualification guidelines for multi-generational families and the use of non-traditonal credit information are three important features that millenials are looking for in a mortgage.  The programs outlined below fulfill one or all of these criteria which is why they are the best mortgage programs for millennials.  All of these programs are offered by traditional traditional lenders such as banks, mortgage brokers and credit unions.
1

Conventional Mortgage

A conventional mortgage is what most people thing of a traditional mortgage.  From a technical standpoint, a conventional mortgage simply means that the loan is not backed by the government.  For millennials, the important point to understand is that conventional mortgages come in all shapes and sizes and typically offer borrowers significant flexibility and the most attractive loan terms.  For example, you can get a fixed rate or adjustable rate mortgage (ARM) and loan terms range from ten to 30 years in length.  Additionally, if you make the standard 20% down payment, the interest rate on a conventional mortgage is typically lower than other loan programs, plus you are not required to pay mortgage insurance.  So in most cases, conventional mortgages save borrowers money compared to other options.

You can also get a 3% down payment conventional mortgage although you are usually required to pay private mortgage insurance (PMI) if you put down less than 20%. Conventional loans can also be used to finance the purchase of multifamily properties, up to four units, which is appealing to millennial borrowers from multi-generation households.

The lender table below compares mortgage rates and closing costs for conventional loans. Contact multiple lenders to shop for your mortgage.

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Current Mortgage Rates as of August 21, 2019
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Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click for more information on rates and product details.

2

HomeReady Mortgage Program

The HomeReady Program enables you to buy a home with a down payment as low as 3.0% and no minimum borrower contribution if you receive a down payment grant or gift.  The program is unique because it permits borrowers to include non-traditional income sources which boosts your ability to qualify for the mortgage or enables you to afford a higher loan amount.  For example, the program allows applicants to include income from a non-occupant co-borrower, such as a parent, as well as rental income from boarders to help you qualify for a mortgage.  For example, if you rent an extra room in your home, that money can be factored into your mortgage application.  Additionally, income from a non-borrower household member, such as a relative, can give you an extra push to help you qualify for a mortgage even though the household member is not listed on the mortgage.

Check out our HomeReady Mortgage Program Guide

The HomeReady Program also allows the use of non-traditional credit information to qualify for a mortgage. Instead of using a standard credit report and credit score, the lender submits a non-traditional credit profile using the borrower's housing payment history plus the payment history for recurring bills such as an electricity, water or a cell phone bill.

3

FHA Mortgage Program

The FHA Mortgage Program enables you to buy a home with a down payment as low as 3.5% and no borrower financial contribution.  The FHA Program is also appealing to millennials due to its more flexible qualification requirements.  For example, the program requires a minimum credit score of only 580 and potentially lower for some borrowers.  The program may also allow lenders to use a higher debt-to-income ratio in certain situations, which means you can afford a higher mortgage amount.  You can use the FHA Program to purchase a property with up to four units, as long as you occupy one of the units as your primary residence. In this case, you could use the rent from the units you do not live in to help you pay the mortgage.

Use our FHA Qualification Calculator to determine what size FHA loan you can afford

The FHA Program requires borrowers to pay an upfront and ongoing mortgage insurance premium (MIP) which usually makes FHA loans more expensive than conventional loans. On the positive side, because the FHA Program is insured by the government, FHA rates tend to be lower than the rates for conventional loans. Borrowers should be sure to understand all of the costs associated with an FHA mortgage but the program offers the flexibility that millennial borrowers want.

The table below shows interest rates and fees for FHA mortgages.  While FHA loan rates tend to be lower than conventional rates, the higher fees and APR reflect the upfront FHA mortgage insurance you are required to pay.  Comparing lenders is the best way to save money on your mortgage.

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Current FHA Mortgage Rates as of August 21, 2019
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Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click for more information on rates and product details.

4

Home Possible Mortgage Program

The Home Possible Mortgage Program also enables you to buy a home with a down payment as low as 3.0% and no minimum borrower contribution if you receive a down payment grant or gift. The Home Possible Program allows applicants to use rental income from boarders or from the units you do not occupy in a multifamily property to qualify for the mortgage.  Although the Home Possible Program is similar to the HomeReady Program, it offers borrowers the ability to buy a multifamily property as long as you live in one of the units, which is attractive to many millennials.  The ability to use rental income to offset your mortgage and other housing expenses provides borrowers a significant financial benefit. 

Another important feature of the Home Possible Program is a potentially reduced mortgage rate depending on the your income and where the property is located. Plus, borrowers are not required to pay upfront mortgage insurance like for an FHA loan and may be eligible for reduced ongoing mortgage insurance fees. The downsides of the Home Possible Program include potential borrower income limits and loan limits but the program certainly offers multiple benefits to millennials.

Use the FREEandCLEAR Lender Directory to search for lenders that offer Home Possible Program and other low down payment programs.

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5

USDA Home Loan Program

The USDA Home Loan Program enables you to buy a home in designated rural areas with no down payment.  The ability to buy a home with no money down creates a huge opportunity for many millennials.  You may think that few properties are eligible for the program but  95% of land in the U.S. covering a population of over 100 million people is designated USDA rural area.  You can use the USDA's Property Eligibility Tool to determine if a property is located in a designated rural area. 

While the USDA Program has relatively rigid qualification requirements, it may be possible to qualify for the program using a non-traditional credit profile.  Applicants with a limited or no credit profile may qualify by providing multiple items that establish their credit history such as a rental payment history, phone bill payments or the payment history for other recurring accounts.

Use our USDA Loan Qualification Calculator to determine the USDA loan you qualify for

Although the USDA Program applies borrower income limits and does not allow the purchase of multifamily properties, it may open the door to home ownership for millennials living in rural or small communities.

6

VA Home Loan Program

The VA Home Loan Program offers eligible active duty and veteran military personnel the ability to buy a home with no down payment.  If you are a millennial who is currently serving or who previously served in the military or national guard, the VA Program could be the right mortgage program for you.  Although the program requires most borrowers to pay a one-time VA funding fee, VA mortgage rates are typically lower than conventional loan rates and you are not required to pay ongoing monthly mortgage insurance.  These features can save borrowers thousands of dollars over the course of their loan.  The VA Program also enables you to purchase a multifamily property with up to four units as long as you reside in one of the units.

Use our VA Loan Qualification Calculator to determine the VA loan you can afford

VA mortgage qualification guidelines such as minimum borrower credit score and maximum debt-to-income ratio are relatively strict but we highly encourage any eligible millennials to explore the many advantages of this valuable program.

The table below shows VA home loan rates and costs for leading lenders near you.  VA interest rates are lower than other loan programs which reduces your monthly payment but applicants may be required to pay a one-time VA funding fee.  Shop several lenders to find the best VA loan terms.

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Current VA Mortgage Rates as of August 21, 2019
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Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click for more information on rates and product details.

Sources

Millennial Home Buying Trends: https://www.nar.realtor/infographics/home-buying-trends-millennials

About the author

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR. More about Harry

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