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Are you thinking of buying a home, but aren't sure if now is the right time? Buying a first home will likely be one of the biggest and costliest financial decisions of a person's life, which could help explain why the typical first-time homebuyer in the U.S. is 34 years old when they do so, according to a 2019 report by real estate marketplace Zillow. And while 34 might be the norm, that doesn't mean you can't make the leap sooner.
Having a place to live is a necessity, and buying a home is a rite of passage many Americans are eager to take on if they can afford to. Typically, homebuyers finance their purchase with a mortgage loan, which they make monthly payments toward over the course of several decades until they fully repay what they owe (plus interest).
Homebuying Trends in the United States
In the U.S., there is over $10.3 trillion in outstanding mortgage debt held by a total of 56 million consumers as of the third quarter (Q3) of 2020, according to Experian data.
At the individual level, Americans had an average mortgage balance of $208,185 in Q3 2020. That amount is up $3,870 from the same period in 2019.
By generation, the highest average mortgage debt balance is held by members of Generation X, which includes people between the ages 40 and 55. In Q3 2020, members of the generation owed $247,564—nearly $40,000 higher than the national average. The silent generation, the oldest generation in our analysis, had the lowest average mortgage balance, owing only $133,827 in Q3 2020.
|Average Mortgage Debt by Generation|
|Generation||Q3 2019||Q3 2020||Change|
|Generation Z (18-23)||$147,822||$169,470||+$21,648|
|Generation X (40-55)||$239,022||$247,564||+$8,542|
|Baby Boomers (56-74)||$175,582||$178,688||+$3,106|
|Silent Generation (75+)||$133,066||$133,827||+$761|
When Is the Best Time to Buy a Home?
Because buying a home might be your largest financial commitment, it's important to be as prepared as possible ahead of purchasing your first home, even if that means waiting a little longer.
If you're thinking about buying a home, here are a few things to consider:
- Do you need a new home quickly for any reason?
- Do you have enough savings to make a sizable down payment?
- Are you confident you'll get approved for financing?
- Are there economic factors that might help me get a good deal?
While there's no real estate equivalent to Black Friday retail discounts, new home listings tend to increase between April and June, according to Zillow. That means if you want a large inventory of homes to choose from, spring or summer might be the best time to buy. You will, however, have a lot of other homebuyers to compete with, so alternatively, looking for homes in the winter might give you a competitive edge with the homes that are available then.
Of course, if you have an immediate need to move—if a baby's on the way or you are relocating for a new job, for instance—you won't have the luxury of waiting for the best time of year. Regardless of when you start looking for a home, always be sure to have your finances in order so you can use your time wisely and only look at properties you can afford.
Ultimately, the best time of year to buy a home is when you are financially and emotionally ready to move forward with this major life milestone.
Loans, Programs and Grants for First-Time Homebuyers
Before you get serious about the homebuying process, make sure you know the financing options that are available. Many first-time homebuyers are eligible for special programs that make the process of getting your first mortgage cheaper and easier.
When thinking about how you plan to finance your home purchase, consider the following:
- What type of loan should I get?
- Are there homebuyer programs in my areas?
- Do I qualify for any grants?
To make homebuying more accessible, federal and local governments have created programs to assist first-time homebuyers. These programs provide down payment assistance as well as specialized programs that reduce the overall burden of buying your first home.
- Neighbor Next Door: This program is offered through the U.S. Department of Housing and Urban Development (HUD) and is geared toward public service workers, including teachers, law enforcement officers and firefighters. Through this program, HUD will give certain public service workers 50% off of homes that are listed for sale in their database.
- Government-insured loans: Mortgages insured by the Federal Housing Administration (FHA) are great for first-time homebuyers as the credit requirements are low and down payments can be as little as 3.5% of the home's purchase price. In addition to the FHA, the Department of Veterans Affairs (VA) offers specialized programs that can help certain purchasers buy homes with no down payment.
- Down payment grants: Sometimes the biggest hurdle in purchasing your first home is coming up with the cash for a down payment and closing costs. Depending on your home's purchase price, paying 10% to 20% upfront might not be an option. To help with this, local governments, lenders and other groups have specialized programs that lower the down payment costs associated with some home purchases. To find more information about the thousands of assistance programs that exist in the U.S. check out the Down Payment Resource.
These are just a few of the many programs that exist to help first-time homebuyers. To take advantage of these options, speak with your real estate agent, lender and local government officials to see if there are any specialized plans you qualify for.
How to Get Your Credit Ready for a Mortgage
Another thing to consider before you start home shopping is your credit. Having good credit is important in the homebuying process, since any red flags in your credit history could cause your mortgage application to be denied, or result in paying a higher interest rate on your loan. If you worry your credit situation will limit your homebuying possibilities, take time to improve your score before applying for a mortgage. Remember, a mortgage is one of the largest loans a person can take out, so the bank will scrutinize your credit and income closely to evaluate how qualified you are to take on that type of debt.
There is no universal credit score minimum that mortgage lenders require. Rather, the score you need will depend on your lender and the type of loan you apply for. For example, a conventional loan—one that is not insured by the government—may have a minimum score requirement ranging from 620 to 660, depending on the lender. Some mortgages, such as those backed by the FHA, may only require a score of 500 if you're able to put at least 10% down on the purchase.
On top of using your credit score to approve you for the loan, lenders will also use your score to determine your interest rate. Typically, consumers with higher scores can lock in lower interest rates and save thousands of dollars over the life of their loan.
If you're considering buying a home and think you may need to first work on your credit, check out these tips for improving your scores:
- Check your credit reports and scores. The first step to figuring out how you can improve your credit is by looking through your reports to identify potential areas of improvement. You can get your credit reports for free from all three major credit bureaus (Experian, TransUnion and Equifax) at AnnualCreditReport.com. Look for any inaccurate information and report it to the appropriate credit bureaus. Removing false information can take time, so this is a process you want to kickstart a few months before you need to apply for credit.
- Stop applying for new credit. As you shop for a new home, limit the number of credit applications you submit. When you apply for new credit—regardless of whether it results in a new account or not—your credit could be impacted. A last-minute change to your credit could disrupt the mortgage underwriting process, so it's advised not to make any changes to your credit until the purchase of your new home is complete.
- Reduce credit card debt. Reducing credit card debt will help you decrease your credit utilization ratio. Your credit utilization ratio counts for 30% of your credit score, and improving this aspect of your credit could help you quickly improve your score.
- Continue to make on-time payments. Payment history is the most important aspect of your credit, and even one late or missed payment could have a negative impact on your scores. To maintain the best scores, be vigilant to make sure you do not miss payments or pay any bills late. A newly recorded delinquency in your credit report could be a red flag for a lender and could cause them to reconsider the terms of your mortgage.
As you work to improve your scores, consider using Experian's free credit monitoring service to track your progress. As your credit changes, you'll be notified and will see how certain things impact your score. You'll also be able to detect fraud sooner as it will alert you when changes occur in your credit reports.
Methodology: The analysis results provided are based on an Experian-created statistically relevant aggregate sampling of our consumer credit database that may include use of the FICO® Score 8 version. Different sampling parameters may generate different findings compared with other similar analysis. Analyzed credit data did not contain personal identification information. Metro areas group counties and cities into specific geographic areas for population censuses and compilations of related statistical data.
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