It's easy to see why young couples want to buy homes in Seattle.
The city is vibrant and thriving, with no shortage of things to do. If you're raising a family, it's the perfect area, with access to world-renowned education, a thriving art community and an abundance of child centered activities.
But, millennials are often saddled with high amounts of debt; with an average to the tune of $42,000. And this isn't necessarily all student loan debt either.
Student loan debt, however, is now over $1 trillion in the United States, so how can millennials hope to buy a house in Seattle, where the prices are extraordinarily high?
In this blog post, we'll talk about what kind of score you'll need to purchase a home in Seattle. It may be more within your reach than you think.
Before we go much further, let's discuss what a credit score is.
If you think of your credit score as a report card, your credit score shows how you're doing in terms of risk. Scores range from 300-850, with anything over 800 being in the range of an A+.
750 and above is considered "very good," and you'll have an easy time getting a mortgage with regards to your credit.
If your credit score is 660-749, this is considered "good." Anything below that can make getting a house a little bit more challenging, though it isn't impossible. If your credit cards are maxed out, it will impeed on your ability to afford the home as well.
Your credit score reflects how much debt you have and how up-to-date you are on paying your debt. Defaulting on a loan or a credit card can really mess up your credit score. Even missing a credit card payment can make it difficult to get your score back into FICO's good graces.
Overall, a credit score tells lenders if you're a high-risk person to lend money to. If you are, they may require more collateral, or outright refuse to lend to you.
Millennials have had to face significant financial challenges due to the high cost of education and having to find jobs after the 2008 economy bust. Many of them are unable to even get smaller loans, much less a mortgage.
Washington, however, has one thing going for it: Millennials in the state have the seventh highest credit scores in the country. The average millennial has a credit score of 689, with a debt of a little over $100,000.
The average millennial in the United States has a credit score of 665, which would make buying a house a little bit challenging. However, a score of 689 is rather impressive, considering a debt of over $100,000.
Buying a house in Seattle is no easy task. With median home prices in the upper $750,000s, it may seem daunting to millennial home buyers. But, it isn't impossible.
Even if you have a low 600s credit score, you'll likely be able to purchase a home in Seattle. This is especially the case if you have a job where you're making a regular income and can prove you can make the mortgage payments.
You'll have an even better chance at scoring a great rate for a home in Seattle if your credit score is over 700. In this case, you won't have much of an issue being able to secure a mortgage due to credit.
But, if your credit score is around the 689 average for millennial home buyers, you'll most likely be fine.
If you're not sure, you can always fill out an application or discuss it with one of our mortgage brokers. We'll be able to help put your mind at ease in less than half an hour.
An FHA loan, or Federal Housing Authority loan, was put in place to ensure that people who don't necessarily have the best of credit scores are able to purchase a house. It is also for individuals who have had to file for bankruptcy in the past, or who have foreclosed on a home. The minimum down payment on these types of loans is 3.5% of the purchase price.
This makes owning a slice of the American dream a reality, even if you've not had the best of luck in the past.
For an FHA loan, you'll typically need a credit score of 580 or more. You may qualify with a FICO score of under 580, but this is only if you're able to put a larger down payment down on the house.
If your score is over 580, your general down payment will be 3.5%. That means if you're buying a $600,000 house in Seattle, you'll need to pay $21,000 upfront.
If your score is less than 580, you'll likely need to pay around 10% of the home's value. That could be in the ballpark of $60,000 for a $600,000 home, which could be out of some people's reach.
However, a mortgage company wants to lend to individuals whom they feel will be able to pay the mortgage back. They do not want to take a chance on lending to someone who will default; and when it comes to low credit, the more money down they can offer, the better.
Besides your credit score, there are a couple of other things that mortgage companies look for when they decide if they'll lend to you. The higher collateral you have, the more likely they'll lend to you despite your credit history.
In this sense, collateral refers to the amount of money you'll pay upfront as a down payment on the house. If your credit isn't great, but you can offer a significant down payment, this could sway a mortgage broker to lend to you. Though, it is just one factor they'll consider when giving you a mortgage.
If you take out a non-FHA loan, you're most likely required to have a good credit score and a down payment of 3%, provided you make $103,000 a year or less.
If you make more than $103,000 a year, and you’re not going FHA, your down payment will start at 5%.
Of course, you can choose to make larger down payments, which will reduce your mortgage and the amount of money you'll need to take out. Reducing your mortgage can only help you and your family in the long-run. While a larger down payment is advised, it isn't always feasible for everyone, and we can help couples and individuals who are making lower down payments.
Another factor you'll need in addition to your credit score is capacity. This means that you have a steady job with money coming in. Not only do you need money coming in, but you need to prove that the money comes in at frequent intervals and is enough to cover your mortgage and basic needs. This is almost always viewed over a 24 month period so if you just started working OT or got your first bonus, that money cannot factor into your monthly income.
Even if you have a pristine credit score and have 50% collateral to put down, if you cannot prove you have income coming in, a lender will not lend to you. In this case, they cannot prove that you'll be able to make your mortgage payments and may believe that you could default on your loans, despite the rest of the paperwork looking good.
The mortgage broker will also look at your debt to income ratio and make sure that your mortgage payment will be feasible coupled with your other debts. These may include credit card debts, student loans, auto loans and any loan you may have co-signed on, regardless of whom has been paying.
It is difficult to determine if you can buy a house in Seattle by looking at your credit score alone. But, if you do have a credit score in the mid 600s, you'll likely be a good candidate to score a new home in your dream city.
Buying a home in Seattle may seem daunting, but it isn't out of your reach, and we're here to help make the dream a reality for home buyers of all experiences.
If you're still not sure about whether you'll be able to afford a home in Seattle, read our article about what mortgage lenders look at when qualifying for a home loan. This should give you a better idea of where you are in comparison to where you should be in order to buy a home.
Seattle's Mortgage Broker specializes in closing Washington home loans extremely quickly. We are out of the box thinkers and are often referred to as the 'golden ticket' when it comes to winning in multiple offer situations. We found our 15+ years of on time closings has built a solid reputation with listing agents and mortgage lenders, which helps us get our clients the best options every time.