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Welcome back to the series, Millennials Mortgage Process! In this post, I’ll explore my reactions to the ‘affordability’ of housing and how greatly Credit Score plays a role.
As I prepare to apply for a mortgage and continue to scroll through Zillow at mini-mansions I know I could never afford (we all do it…), one thing keeps cropping up and making me uneasy- Credit Score.
Credit Score is a strange topic. People are either obsessed with their Credit or they are vaguely aware that they even have it. I tend to fall on the ‘aware they have it’ side of the spectrum:
- I have a credit card that I always pay on time.
- I have a car loan I always pay on time.
It wasn’t until the Equifax data hack that I started paying attention to my credit more closely, mainly, how to freeze my credit, but then I began reading about the tips and tricks that people should utilize to build their Credit Score, and the importance of building it before applying for a mortgage:
- Don’t open a new line of credit.
- Don’t pay off a line of credit before applying for another loan.
- Do pay attention to how many days before your due date you make payments on current loans, as this can greatly boost or lower your credit score.
The list goes on and on. In hindsight, I’m glad that I have technology and multiple resources to guide me on my financial journey. I didn’t have that breadth of knowledge in 2009 when I began looking at colleges and sat in on countless ‘Financial Aid’ discussions led by college admission officers or high school counselors. I was vaguely aware of the impact the decisions I made then would have on my future decisions as an adult, far past the days of wearing plaid kilts and knee-high socks.
Despite the different financial paths my fiancé and I took, my credit score is only 10 points higher than his. Now, when I say ‘financial paths’, I’m referring to how we both dealt with FAFSA (shudder). We both applied for FAFSA and took on debt, but he has a repayment plan that goes until 2040.
Let’s pause here for a moment: he was making a choice in 2010, on the edge of 17, that would continue to affect him into 2040.
Now, dear reader, when’s the last time you were content with a decision that you would live with for the next 30 years?
Yes, I realize, that the industry average is a 30-year fixed mortgage. But I am also now in my late 20s, have far more tools at my fingertips, and understand more fully how difficult affording a house can be. And, according to Unison’s Home Affordability Report, it will now take 14 years for someone earning a median income in the US to put 20% down on a median priced home.
Think I’m being overly dramatic? Here’s a few more fun facts about the ‘affordability’ of houses:
- A Bank of America survey distributed in 2018 to Millennials shows that 72% of my generation considered owning a home a priority, higher than travel, marriage, or having children. While owning a home is clearly preferred, only 37% are homeowners. Additionally, of those surveyed, 16% said they didn’t have good enough credit to purchase a home yet.
- Interestingly enough, another recent report states that the average FICO score for closed mortgages in April 2019 was 728, which lands smartly in between ‘good’ and ‘excellent’.
While it’s ‘excellent’ that the average FICO score is so high, this isn’t reflecting the vast majority of my generation, which has an average score of 665. The obvious impact to our scores stems from student loan debt, and instead of being in a financially stable position to begin making decisions on retirement funds or future savings plans, we are a generation playing catch-up and trying to salvage our credit. In the months since the Experian hack, I’ve gone from ‘barely aware’ to finding it unnerving that decisions I made when I was 17- choosing a college, my student loan package, financial aid repayment plans- will haunt myself and my generation for the next 30 years.
Great read!
Well put.