It may be a competitive market, but there’s still room for Millennials ready to buy their first home. Although it may seem like home ownership is a far off dream for the generation that witnessed the worst recession in decades, it’s closer than they realize.
Right now, they’re the most active generation on the market: Millennials made up 37 percent of all homebuyers in 2018. More than half of first-time homebuyers are in their twenties and thirties.
Read on for our best tips for Millennial home buyers ready to seal the deal on their first home.
Pay Off Student Loans and Get Pre-Approved for a Loan Before You Start the Search
It’s much harder to save for a house if you’re still paying off student loans. That’s why it’s important to create a savings plan early on to make your home ownership dreams come true. This may mean you’ll have to cut back on luxuries and pay a little extra forward, so you’re that much closer to owning a home. It’s always a good idea to get your finances in order before you take the leap.
Your REALTOR® can recommend a few lenders to help you get pre-approved, but don’t skip this step before you dive into your search. Without pre-approval, it’s nearly impossible to get your offer accepted if there’s a bidding war. What a pre-approval letter shows sellers is that you make income commiserate with the value of the home. Typically, you’ll want to aim for a home that lets you keep the monthly payment around 25 to 30 percent of your monthly income on a 15-year, fixed rate plan.
To get pre-approved, you need to show proof of your income and have savings in place to pay the down payment. Dave Ramsey recommends saving up 10 to 20 percent of the mortgage before you start the process.
Decide Whether You’re Buying a Starter Home or a Forever Home
It may be tempting to think only short-term, but don’t buy a home that will only work for you for two to three years. It’s always a better idea to buy a home that you can see yourself in for five or more years. You may have every intention to move on up to a bigger home, but market conditions change. It’s essential to buy the best property you can with the budget you have available, even if you plan to grow your family and settle into another home. When you sell your home, you’ll lose six to seven percent in equity, so it’s better to buy with a longer timeline in mind.
Avoid Private Mortgage Insurance
When you’re buying your first home, the worst thing you can do is get Private Mortgage Insurance (PMI). Programs like these charge interest on top of your mortgage to reduce the risk you’ll default on the loan. Although it might feel like a safety net, you’ll only end up paying even more on your house.
To avoid Private Mortgage Insurance, save up 20 percent of the mortgage as your down payment. If you don’t, PMI could stay with you for as long as five to seven years until you’ve paid off twenty percent of the principal.
Figure Out Your Must-Haves and Narrow Down Your Search Radius Early
Sooner rather than later, it may be a good idea to establish your must-haves. Do you need two bedrooms but feel that you can live without a pool or large backyard? It may not seem like it but creating a list of three to four must-haves makes your search easier and eliminates listings you don’t even need to consider. Figuring out your must-haves also allows you to narrow down your locations. If a neighborhood is out of your budget, you won’t even have to consider it in your search.
You’ll also want to get some insights on how much comparable listings are in the area and check out school districts, resale values, and projected market values to have the best idea of what you can expect. You’ll also want to keep in mind your commute, budget, and personal preferences.
Don’t Assume You Can’t Buy and Check Out Assistance Programs
Because Millennials witnessed the Recession, there’s a pervading belief that home ownership is impossible. Don’t fall into the trap of believing that it’s impossible to own a home even with solid savings and a plan. Plus, homeowner assistance programs make home ownership that much more achievable. Programs like the Mortgage Credit Certification and NeighborhoodLIFT program assist you in paying your down payment and lower your mortgage overall.
Final Thoughts for Millennial Home Buyers
Just like nearly everything else in life, preparation is key when buying a home, especially if you are a first-time home buyer.
- Figure out your finances and setting a budget you are comfortable with is essential. Without doing so, you run the extreme risk of overextending yourself, which is a recipe for disaster.
- Do not plan to buy a home which you or your family may outgrow in a few years. Although we mentioned you lose nearly six to seven percent in equity when selling your home, buying a home is still a major investment. Plan to purchase a home for the long term.
- Create a small list of must haves and find a reputable REALTOR® who will guide you through this process.
- Do not be ashamed of looking into home buying assistance programs. There are numerous programs that are easily accessible. They will help you lower your down payment and overall payment toward the house.
While there is no “one size fits all” plan to purchase a home for millennials, these tips outlined will surely set you up for success.
Additional Helpful Articles for Millennial Home Buyers:
- Find out how these Millennial homebuyers bought their first homes.
- Reverse-engineer the search by learning more about how realtors and sellers are attracting Millennial homebuyers.
- To get more budgeting tips for first-time homebuyers, check out these budgeting tips.
- Learn how to avoid paying Private Mortgage Insurance.
- How to save money for a down payment on a home.
About the Author:
Alex DeMarzo is a passionate writer who has published numerous articles for real estate, health care, public education, and sports industries. Additionally, he works in partnership with 1-800-GOT-JUNK?, a local junk/waste removal company, to help curate and create research along with blog content.
Content was written for Kevin Vitali- Massachusetts REALTOR®- Looking to buy or sell call Kevin at 978-360-0422