According to the National Association of Realtors, millennial home buyers represent about 38% of the total buyer pool. Millennial buyers are a large portion of the real estate market. With that, many are likely first time buyers facing the challenges of making their first home purchase. From student loans, to having a steady job and saving for a down payment, millennials have a lot of obstacles to overcome before they make this big decision. Below are some tips for millennial home buyers to make the journey just a little bit easier.
Determine if it’s even the right time to buy
In some situations, it’s better to rent vs. buy but this largely depends on a person’s financial situation. To determine if home ownership is the best route for you and your current situation, take a look at your debt. Does a large portion of your monthly income go towards paying off debt? Consider how much you’d need for a down payment and what your savings currently look like. With that, it’s helpful to budget how much mortgage you can afford on a monthly basis.
Tax implications, housing market conditions, and how long you plan to stay in the home are all important factors to consider as well. For example, if you plan to stay in a home long term, then buying might be a good investment for you. I
Minimize debt and student loans
One of the biggest roadblocks in purchasing a home for millennials vs. previous generations is student loans. Student loan debt climbed to a trillion and a half dollars in 2020. In 2019, the average amount of student loan debt the average American had was about $35,000.
When financing a home, lenders look at the amount of debt a person has to determine if they are safe to lend money too. If there is too much student loan debt, a lender might view a borrower as risky and decide not to make the bet on lending money for a mortgage. Additionally, the monthly payments that millennials are paying on student loans can affect their ability to save for the appropriate down payment.
On top of student loans, credit card debt and car payments are the next largest factors in preventing millennials from purchasing a home. Minimizing these debts by paying them down or trying to pay cash for items will help.
Save for a down payment
One of the best tips for millennial home buyers is to start saving now for your down payment. Consider saving at least 10% to 20% of the purchase price of the home. This decreases the amount of debt taken on and eases the impact if there is a downturn in the market.
Home buyers who put 20% down when buying a home avoid paying private mortgage insurance on a loan. As a result, this provides savings and makes your monthly payment slightly lower.
Saving for a big down payment is easier said than done, but it is possible. Simply cutting down on expenses like eating out and shopping add up to that 10-20% down payment quickly.
In addition to making cuts, increasing income by picking up side hustles can help contribute to your down payment too. Consider paid focus groups, tutoring, dog walking, or even driving for Lyft/Uber.
Before looking, get pre-qualified
It’s important to look at properties in areas you’re considering to ensure the area is a good fit for you. However, before looking for properties, it’s important to get pre-qualified through a trusted lender or mortgage broker. Then, once pre-qualified, the home buying process becomes much easier because buyers know how much they can afford.
It’s important to be competitive in a sellers market and having a pre-qualification can send a strong message to a seller that there are serious intentions to purchasing a property.
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Find an affordable house
The last but now least of our tips for millennial home buyers: choose a home you can afford.
Once pre-qualified, it’s time to start looking for a house to purchase. One issue that millennials might run into is attempting to make a purchase in a sellers market with historically high home prices.
Additionally, millennials might qualify to pay high prices, especially with the current low interest rate numbers, but that doesn’t mean they should do that. It can be tempting to make dollars stretch further and get a bigger house however, some personal finance professionals say that a monthly house payment should equate to one third of a household’s take home pay so that they don’t become house poor.
The best way to find an affordable house to purchase is enlisting a real estate agent that specializes in first time home buyers. Millennials should find an agent that knows the market well and has experience with multiple transactions. They can set up a customized property search with specific criteria such as size, price, location, etc so that a person can buy a home that meets their needs. Consider a company like Trelora. Our agents have tremendous experience, and provide the special, personal service a first-time homebuyer needs.
Christopher has been been in the Real Estate industry for 8 years and has had the opportunity to close over 1,000 deals while acting as the Managing Broker for thousands more. Christopher is passionate about continuing to find ways to simplify, maximize, and serve Trelora’s clients exceptionally well and spends his time building teams to deliver high levels of service. When not doing real estate Christopher can be seen training for marathons and ultra relays with his 2 year old daughter, eating pizza, and drinking a steady stream of Diet Coke.