There is a common myth going around that pretty much says most millennials are either renting their primary residences or living with their parents because they simply are not enthusiastic about the idea of owning their own homes. We said “myth” because recent findings seem to indicate that this is simply are not true. A study conducted recently shows that the lack of home owning desire amongst millennials is not what is really preventing millennials from getting in on the housing market. The survey, which went out to over 1,800 people back in March, indicates that about 1/3 of millennials who were polled said that they plan on purchasing a home within the next year, but that 43 percent of these folks would have credit scores that would be rated as “subprime.” For those of you out there not familiar with this term, a subprime score is technical jargon for a bad credit score; one that comes in at between 300 and 600.
TransUnion was the organization that conducted this survey. According to the company’s SVP Ken Chaplin, “Credit scores are a crucial component of the home-buying process, impacting everything from the size of a mortgage payment to the interest rate on a home loan. People with subprime credit may face financial barriers to homeownership, making it difficult for their dream home to become a reality.”
When people have such low credit scores, even those who are interested in purchasing a home may not be able to qualify for a mortgage. Last summer, borrowers who closed on mortgages in the month of September had average credit scores of 723, which was down from the 732 average the previous winter. To make things even more complicated for potential home buyers with bad credit scores, there were some lending companies that were actually rejecting borrower applications from people with scores as positive as 694.
Considering all of the millennials that TransUnion surveyed, about 47 percent of them stated that they were worried about their low credit scores, 59 percent even stated that they had serious concerns about not having enough money saved up for a down payment on a home. And 56 percent of these respondents said that they were worried about not having good enough credit scores to qualify for a home loan with a low interest rate. Chaplin said, “People with subprime credit may face financial barriers to homeownership, making it difficult for their dream home to become a reality.”
Taking a look at other age groups that participated in the survey, about 17 percent of those between the ages of 35 and 54 said they had plans to buy a home in the next 12 months. The same portion of that age group – 17 percent – had higher than average credit scores. Just about 6 percent of people ages 55 and up said that they will be planning on purchasing homes in the next 12 months. But of this group, about 34 percent had very high credit scores.
Chaplain offered further advice to home buyers, saying, “The homebuying process begins well before you start looking for real estate. A credit score, which significantly impacts the home financing process, is built on good spending habits and a pattern of responsible borrowing established over a lifetime.” Millennials who are sick of renting or who desperately need to move out of their parents’ homes need to face the facts that their lower credit scores are probably holding them back from reaching their goals. These consumers need to pull their credit reports, get any errors fixed and then take steps to responsibly use credit in such a way as to improve their credit scores if they plan on getting decent rates on mortgages any time soon.
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