Chicago — To help Gen Z and Millennials prepare for buying a home, no matter if they are or aren’t in a good position to do so at the moment, CNBC talked with an expert from Marcus by Goldman Sachs, Chief Financial Officer Liz Ewing.
Here are some tips she offered for the generations:
Improve your credit score
One’s credit score plays a big role in the interest rate they’ll receive when applying for a mortgage. Some lenders offer options that cater to people with lower scores but it's better to improve your score before submitting an application to lenders. The higher it is, the lower your rate will be. That means you could end up saving thousands of dollars over the life of your home loan.
“Checking your credit score early on and ideally prior to getting serious about purchasing a home will provide the opportunity to improve it, should you need to do so,” said Ewing..
Paying your bills on time is a good way to help raise your score.
Set a savings goal
Figuring out the kind of loan you want can help you determine how much money you’ll need to save up for a down payment, which is a sum of money that gets paid up front when you buy a home. The down payment you’ll need to make varies depending on the home’s price and the type of loan you’re applying for.
Remember: the lower your down payment, the higher your monthly mortgage payments will be.
“When taking into account the down payment, your income, expenses and current debts, you can establish a savings goal and make an actionable plan to reach that amount,” she said.
Know where to save money
High-yield savings accounts are an easy way to save money while earning higher-than-average interest rates. It’s a way of seeing your money grow without having to invest it.
When deciding where to save money, consider banks and banking platforms that offer competitive interest rates to help your money work as hard as possible,” said Ewing. “It may be worth considering opening a high-yield savings account just for your down payment and setting up automatic direct deposits into the account on a monthly basis to save the money before having the chance to spend it.”
Another way to save is using a certificate deposit. They hold a fixed amount of money for a fixed amount of time in exchange for interest paid on your balance. She recommends exploring these accounts if you don’t plan on beginning your home search for several more months or years.