Buying your first home can be exhilarating. It can also be hard, exhausting, and yet, extremely rewarding. Knowing that you own the roof over your head gives you a great sense of pride. At a certain age, people tend to settle down and make the biggest financial decision of their lives to buy their first home. Many younger millennials are at that age now and need to start venturing out into the housing market.
Millennials are dealing with a harsher economy and higher cost of living than the generations before them. Despite that, millennials make up for the largest portion of the new home buyer’s pool. Part of it is simply the desire to settle down early, and partly because millennials are, by necessity, becoming more prudent spenders. They understand that loan money is dead money. With the right approach, the amount of money they are paying for rent might go towards paying the mortgage on their own home.
Here are a few home buying tips for millennials:
Start worrying about your credit score as early as you can. If you exclude the student loan, it’s much easier to build a better credit score as a student and part-time worker. A good credit score will help you land a good mortgage deal. Younger millennials might not be making a lot of money at the current stage of their career. If you combine that with a bad credit score, your options will be severely limited.
Some good habits to maintain a healthy credit score include paying your debts well in time. Also, not letting debts exceed 25% of your credit limit, and no delinquent payments.
Clear Your Debts
The millennials saw some of the worst times when it comes to education-related expenses. Student loans make up for a major chunk of millennial debt. This debt not only brings down the credit score, marking them as unsafe borrowers, but it also makes it hard for them to work towards paying two debts at once. The student loan and the mortgage.
This is why millennials should first work towards paying off their outstanding debts, whether it’s a student loan, credit card debt, or automotive loans. This may take more time, but it will be worth it. Paying off your house, along with paying your other significant debt is not very feasible.
Cut Expenses and Save
It is possible to buy a house and secure a mortgage with a down payment as low as 3.5%, but it will cost a lot more in the long term. And buying a new house and moving in costs way more than a simple down payment. Therefore, the more you save, the easier buying your first house will be. A millennial looking to buy a house should start with cutting expenses and saving.
The most significant expense millennials can cut is the rent. By moving in with your parents, a relative, or a friend, you will be able to save that amount. Your aim should be to save at least double the amount needed for a 20% down payment on your new home. So for a $200,000 house, your goal should be somewhere in the $80,000 zone.
It might seem a lot, but there are two major benefits:
With a 20% down payment, you will be exempted from private mortgage insurance.
With the other $40,000, you will be able to cover the new home expenses. They include moving, repairing, realtor fees, etc. The more you have saved up, the better your options will be.
Consider Taking a Loan from Family or Friend
You might want to make your own way in life, but if you have the option, ask for help when you need it. You can take a loan from a family member or a friend, especially for the down payment on the new home. You probably won’t have to pay interest, and with softer loan return terms, you might easily manage to pay it back along with your mortgage payments.
Consider Your Housing Options
Owning a home and owning “the” home are two very different things. If better finances and getting rid of rent are your core aims, then you should approach the housing market solely from a cost perspective. This might also be the time to consider your housing options. Rather than buying a house, you may choose an apartment, condo, or a manufactured home- the least expensive option.
This decision should be made with the long term goals in mind. Whether you plan to live alone or have a family. What will your property be worth in a decade? Will you be staying there for several years, or are you planning to move abroad in a decade? These kinds of questions can give you a broader perspective while you are making the biggest financial decision of your life.
Do Your Research
If you are opting for a realtor, do your research about finding the top realtor according to your requirements. Go through comments, read reviews, compare commission rates, area specialty, and reach out to previous clients if you can. A good realtor can be the difference between an exciting new home and a hateful new property.
As millennials are better adept at technology, you should employ the power of the internet. Carry out as much research as you can about properties on your own. The more data you have, the more informed decision you will make. But don’t rush it. Since millennials are plagued with the instant-result mindset, it can be hard to take your time. But buying a home cannot and shouldn’t be rushed.
Pick a Property Well Inside Your Range
If you are pre-approved for a mortgage and you managed to get a really sweet deal, you might overreach and buy your dream property, instead of simply buying the feasible one. But the charm will wear off soon enough when you start expanding way over your budget. To play it safe, pick a property well under your budget and estimation. Like if you planned and saved for a $200,000 property, play it safe and choose the one that costs around $180,000.
Millennial homebuyers might face more difficulties in buying their new homes, but it’s not impossible. With some serious cutbacks, savings, and excellent financial management, you will be buying your first house in just a few years. But the key is to start working on it as soon as you can.