Forgotten Your Password?

Need to Register?

5 Ways to Qualify for a Mortgage as a Young Adult

By Sari R. Updated on 5/12/2014

qualify for a mortgage as a young adult or college studentIn the current economic climate, home loans can be difficult to obtain for young adults. For graduating college students and other young adults looking to own a home, the mortgage approval and financing process can be complicated and confusing. However, with some knowledge and some preparation, young adults can obtain home mortgage loans and purchase property.

To better prepare younger loan applicants, here is a list of five things that lenders will consider when determining whether or not to fund a loan for a young adult borrower:

1. Gifted Down payment

Following the housing market collapse, zero-down loans have essentially disappeared. Today, lenders expect borrowers to share the risk by putting forward more money up front toward the home purchase. For conventional loans, borrowers should anticipate a down payment of at least 5% of the property’s purchase price, although some lenders may require down payments as high as 20% or even 25%.

Young adult borrowers who cannot afford to make a sizeable down payment should consider putting off first home purchase until these funds can be acquired. Another option is to use gift funds from a relative. As long as the borrower has 5% of their own money, gift funds can be used for the rest of the down payment.

2. Having Savings

In addition to down payment, lenders are much more likely to approve younger borrowers with money set aside, either in a savings account or in assets, to cover any unforeseeable emergency situations. This money may be used to make mortgage payments during times of unemployment, periods between employment, and financial hardship. Without some money stored away in savings, young adult borrowers may find lenders reluctant to issue them a loan.

3. Solid Employment History

For young adults and college students, lenders will require proof of steady, full-time employment before approving you for a loan. This proof may be established through pay stubs or previous income tax returns.

Young Adult Mortgage Qualify

On the other hand, part-time workers will be perceived as a higher risk and may not qualify. Furthermore, self-employed borrowers will need to provide ample proof to substantiate stated income and to establish reliability. These entrepreneurs may be slowed during the approval process by requirements for additional tax returns and extra documentation.

4. High Credit Score

In any loan transaction, higher credit score translates to lower mortgage rates and a more cost-effective loan. Typically, the optimal interest rates are reserved for borrowers with credit scores exceeding 740, far above the credit score range of most young adults. While qualification can still be possible with a FICO score within the 600 range, even minute differences in interest rates can translate into tremendous savings over the course of a loan.

As such, young adult borrowers should consider whether it would be more advantageous and financially worthwhile to purchase a home immediately or wait several years to build up a respectable credit history.

5. Diminishing Student Loan Debt

In order to develop a higher credit score, young adult borrowers  and college students should make consistent and on-time payments for any outstanding student loan debt. When attempting to prove reliability to a lender, student loan debt can be exceptionally valuable for younger borrowers as a means to build credit.

Related Searches:
About The Author:
Sari R.
Sari R. is a mortgage editor for Lender411com. She graduated with a Bachelor's Degree in Screenwriting and Public Relations/Advertising from Chapman University. She can be reached at sarelyn@lender411com.

Didn't find the answer you wanted? Ask one of your own.

Get an answer

Related Articles

Subscribe to our news feed.