The “Boomerang Generation,” is the group of adults 18 to 34 that have chosen to move back in with their parents ” which is estimated as much as 39 percent of young adults.* The decision to move back in with parents is a function of the challenging employment market, high student loan debt and an increased social acceptance of multi-generational households. This can be of some comfort to parents suffering from empty nest syndrome! They’ll be back.
To avoid having home ownership hopes go bust, boomerangers start seriously considering the purchase of their own home, they need to be proactive in how they will be presenting themselves in the mortgage market. Anyone planning to move out of a parent’s home and buy one of their own should make certain they do at least four things:
Establish a rental history
Lenders are paying a great deal of attention to a prospective home buyer’s past housing payment history. They want to be certain the new homebuyer will be able to meet mortgage payments! So lenders and brokers advise that a home buyer be able to show a one to two year rental payment history even if they are living at home with parents or another family member. The payments should be regular every month; always for the same amount and paid at the same time every month. Ideally they should be equivalent to a monthly mortgage payment. Lenders are looking to see parents behaving like real landlords. If a parent doesn’t want to take money from their offspring they may well be able to gift it back in the future but it is important to keep the goal of home ownership in the forefront of everyone’s mind.
Save for a down payment
While there are a number of low down payment loans available through the FHA, not every form of ownership qualifies for an FHA loan. Many condo complexes and co-ops are not FHA qualified. Buyers need savings to cover not only the down payment but also closing costs. Besides banks are happiest when you have “skin in the game,” equity you might lose if you default.
Pay attention to your credit
Everything that involves your credit matters more than you might have imagined. Where once an occasional late payment could be explained away, now it will result in a drop of your credit score. This leads to a lowering of your allowed debt to income ratio as well and increase in the mortgage interest rates. All this serves to decrease the kind of property you can purchase and may even force you out of your desired market. Building your credit score as high as possible is key to affordability.
Talk with a trusted advisor as soon as possible
Your Realtor is a very good place to start. Ask for a referral to one from someone who has had a good experience in a real estate transaction. From there, your Realtor can recommend a good loan office or broker to help you get started on the right path. Down the road most every boomeranger will want a home of her own. Making that happen is a process that can begin right now.
*Pew Research Center
