Public speaking. A root canal. Calling an outsourced customer service number. In the realm of things so many of us dread, but have to do because they will make our lives better eventually, mortgages rank pretty high. In fact, according to a recent survey from Zillow, 36 percent of Americans have cried during the home-buying process. We get it: home buying can be a confusing and complex process.
But does it have to be that way? In this post, we detail some of the nuances relevant to millennials and why a better alternative matters. While we don’t believe you can stereotype any generation, we do acknowledge that technology and the economy have affected different demographics in unique ways worth acknowledging.
Some of us older millennials grew up with the Apple IIGS while the younger ones played with smartphones. Either way, technology revolutionized our expectations versus the reality our parents lived. Yet for some reason, home buying has frightfully not evolved much from when your parents bought their own first home. And even in the growing world of digital mortgages, many providers focus on an improved interface, but not technology that can improve and speed up the entire process. Once your bank has lost the email with your W2s a few times and takes weeks to tell them how to fix an error on your credit report, you may be at your wit’s end.
A truly helpful digital mortgage allows homebuyers to compare various loan options digitally, like what you do when you buy a TV or laptop. By seeing side-by-side comparisons of the loan programs for which a borrower qualifies, you have more control over making an informed decision. Buyers should have the ability to clearly see the pros and cons of selecting between these options and transparently understand the impact to their net worth or savings based on the amount of time somebody expects to own a home.
Our careers stagnated following the Great Recession. We hear the word mortgage and we shudder. So what can be done to build trust? We believe that transparency is key for more millennials to feel comfortable transitioning from renting to buying. You don’t walk into a car or home share service because it’s easy. You trust services that have the background information, picture, name and peer reviews to make you feel safe. Technology in home financing should be the same and help build a bridge between the known and the unknown.
A borrower should also not have to go their neighbor for advice – or to a bank that only offers their own loan products. We get it, it’s a big decision, and folks want a reference. But depending on who you work with, you could be limited by working with a bank that limits your access to products. Unless you shop across multiple companies, your product choice will be limited based on that broker or banks relationships. Also, some outfits pay their MLO’s differently, so you could get quoted different rates based on which MLO you talked to at the same company.
Borrowers should be able to see a competitive rate at every level of down payment – so they won’t have to worry that a salesperson is misleading a borrower to commit to a more expensive product. Much like an airline exchange – instead of just searching one airline’s site, technology can help borrowers access a whole universe of mortgage products. It’s technology that has penetrated pretty much every other industry—and highlights the question of why the mortgage industry had been so behind the digital divide.
Peer reviews are also key to building trust through third-party validation. Two-way communication has been the norm for the last decade, with companies no longer telling you what to think, but being able to get advice from a myriad of other users has forced better customer service across industries. Google Reviews, Zillow and even Facebook allow people to share a good or bad experience, so do your research before you apply for a home loan.
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It’s common knowledge that a certain amount of financial stability is required to qualify a home loan, but do you know what that really means? Home loan applicants deserve to see whether the income they earn and the money they’ve saved is enough to qualify for the loan they seek. This seems simple enough, but shockingly it’s not even close to standard practice in the home lending industry.
Millennials who have flourished in the gig or temp economy or had to change jobs frequently should realize that even through two years of consistent employment in the same industry is preferred, it’s not the only way. You can sometimes gain eligibility with one year of consistent employment, which is largely considered a minimum, if you have the right circumstances such as a larger down payment, for example.
Also, if you show that you’ve been in the same industry, it’s easier to underwrite your loan rather than if you went to become a coach. Or in some cases, if you’re a developer who was employed in-house and then moved to consult in the tech world, that can count as consistency. Beyond having the employment history, income, credit and savings for your down payment, another risk from a career in the gig economy is if none of your jobs included a retirement savings benefit, you may also be behind when it comes to the reserve income you need to purchase a home.
There are many things that can influence your eligibility, and it’s better to know them well before you’re ready to purchase a home since what you don’t know can hurt you. A few examples:
- Did you know that rental payment history as a factor of creditworthiness has become fairly standard with lenders, but not working in the cannabis industry?
- Are you familiar with down payment assistance programs, and what the income limits are for these programs?
- Do you know what you should consider when you save for a down payment? We detail some options in another blog post you can read here.
- Did anybody tell you that even after saving for a down payment, insurance, and closing costs, it’s wise to put aside 1% of your purchase price for annual maintenance on your house?
- Are you aware how expensive it is if you need to sell house and that some real estate brokers charge an astonishing 6% in fees, eating into any increases in value your home may have had or renovations you completed while you lived there?
A study from Ellie May in 2018 showed that 37% of millennial homeowners would have preferred more face-to-face interaction and thorough communication with their lender. So make sure you work with a lender that you trust. While top technology will make the process faster and cleaner, education is a critical part of picking the right partner in your home buying journey.