Are You Mortgage Ready? A Look at Gen X, Millennials and Gen Z

January 13, 2022

You feel ready to own your own home, but are you financially ready for a mortgage? In a recent research study, Freddie Mac reviewed potential first-time homebuyers younger than 45 years old to examine both the opportunities and barriers to their mortgage readiness.

Millennial at desk

Are You Mortgage Ready?

In considering whether a potential first-time homebuyer is mortgage ready, we looked at the following factors:

  • Credit score.
  • Back-end debt-to-income (DTI) ratio.
  • Foreclosures or bankruptcies in the past 84 months.
  • Severe delinquencies in the past 12 months.

We then categorized these potential homebuyers into three profiles: mortgage ready, near mortgage ready and not currently mortgage ready.

  Mortgage Ready
(All of the following)
Near Mortgage Ready
(All of the following)
Not Currently Mortgage Ready
(Any of the following)
Credit score 661 or higher 600-660 599 or less
DTI ratio 25% or less 25% or less Greater than 25%
Foreclosures or bankruptcies in the past 84 months No No Yes
Severe delinquencies in the past 12 months No No Yes

Of the population that we researched in the report — those who were 45 years old and younger with a credit history who did not currently have a mortgage — Gen Z (born 1998-2003) had both the highest share of those who are “mortgage ready,” at 55%, and of those who are "near mortgage ready," at 19%. Young Millennials (born 1990-1997) had the most "not currently mortgage ready," with 35%.

Mortgage readiness by generation chart

What You Can Do About Your Credit Score

Your credit score summarizes your credit profile and predicts the likelihood that you'll repay future debts. Credit scores change often, as does the information in your credit history.

If your credit score puts you in the "near mortgage ready" or "not currently mortgage ready" group, there are steps you can take to build your credit history and improve your score. These include:

  • Paying your rent on time and working with your property manager to make sure these payments are being reported to credit bureaus.
  • Paying your bills on time, including credit cards, student loans and car payments.
  • Keeping your credit card balances low. Pay your credit card bill in full, if you can.

If you need to build or rebuild credit, be patient. The best practice is to review your credit regularly and manage your credit wisely over time.

What You Can Do About Your DTI Ratio

Your DTI ratio shows how much of your monthly income you're using to pay your debt. 

To calculate your DTI, divide your total recurring monthly debt (e.g., monthly rent, auto loan and credit card payments) by your gross monthly income (i.e., the total amount you make each month before taxes, withholdings and expenses). A good rule-of-thumb is to have a DTI below 43%.

Calculating your debt-to-income ratio

If your DTI ratio is keeping you from being mortgage ready, you can work toward reducing your debt with the help of education tools and resources. For example, Freddie Mac's CreditSmart® suite of financial and homeownership education resources includes budget trackers and goal checkers that you can personalize for your needs.

You should also consider working with a housing counseling agency approved by the U.S. Department of Housing and Urban Development (HUD) to learn about financial literacy topics, such as credit restoration, budget management and other principles that can empower you to be more confident and knowledgeable in your home purchase decisions.

To speak with a HUD-certified housing counselor, you can use one of the national Freddie Mac Borrower Help Centers. Free phone assistance is available at 877-300-4179, or you can contact your local Borrower Help Center.

What You Can Do About Foreclosure, Bankruptcy or Delinquencies

If you've gone through foreclosure or bankruptcy, or you've had trouble paying for your housing, working with a certified housing counselor can help improve your financial picture.

Taking the First Step to Homeownership

If you're ready to start the process of buying a home, saving for a down payment is often viewed as one of the leading obstacles. However, you may be overestimating how much you need for a down payment.

Contrary to popular belief, the typical homebuyer makes a down payment between 5% and 20% of the purchase price, and some mortgage products make it possible to put down as little as 3%. For example, Freddie Mac Home Possible® and Freddie Mac HomeOne® mortgages only require a 3% down payment.

The amount that you put down when buying a home will depend on your unique financial situation, your lender and the type of mortgage you're eligible for.

Talk to your lender or housing counselor about available down payment and mortgage options, down payment assistance programs, and whether a Freddie Mac mortgage might be right for you.

To learn more about how you can prepare for and navigate the homebuying process, visit My Home by Freddie Mac®.