5 Tips for Millennial Home Buyers Here's how to make your own exciting, life-changing purchase.
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It appears the notion that Millennials are buying too much avocado toast to ever afford to buy a home was way off. Millennials accounted for 37% of all home buyers in 2019 and are the most active generation of buyers. The Covid-19 pandemic may have slowed things down a bit last year, but Gen Y is still the group real-estate agents should be drooling over. They're ready to begin their journey to becoming homeowners now more than ever.
But most Millennials are first-time buyers, and if you fall into that category, you will want to be as prepared as possible for this often lengthy and emotional process. Buying a home can seem like such a daunting process for anyone, especially Millennials, who have seen so much economic uncertainty in their lifetime. But it can mean financial freedom and the ability to settle into a home in which you'll grow for years to come. It can also mean the ability to sell that home for a profit later on and move onto that next big chapter of your life.
Here are five tips for Millennials hoping to snap that coveted "We closed!" picture in front of their dream home.
1. Keep saving as much as you can
If you've been saving up for a down payment on a house despite forking over a significant part of your income just to pay rent, you may be well on the way to being a qualified applicant. The first step is to talk to a trusted lender to understand better what you need to do to qualify.
A whopping 97% of Millennials are utilizing mortgages to buy their first home. This means you'll need to have anywhere between 10% and 20% saved for your down payment. Of course, the more you have saved up, the better! If you are able to come up with a 20% down payment, you'll bypass PMI, which is the additional payment tacked on by lenders that protects them if you stop making mortgage payments. You should also have additional savings to cover closing costs and other fees and expenses that come with buying a home.
When it comes to home buying, you need to be prepared for the "what ifs," which means saving enough money to cover unforeseen costs.
2. Get your student loans and other debts in order
One of the main reasons Millennials have been struggling to buy a home is crippling student-loan debt. Over 44 million Americans are paying student loan debt, an issue past generations have not had to deal with since the cost of getting a degree was much more manageable decades ago.
You'll qualify for a much better rate if you don't have other outstanding loans on your record. This includes both student-loan debt and other consumer debts such as credit-card debt.
3. Work on that credit score
Your credit score is a huge driving factor in your ability to qualify for a mortgage. Paying off any outstanding debts will certainly help in this area. Be sure to pay your bills on time, as an overdue payment can impact your score. Lenders want to see you're reliable and will look at your past performance to determine your future performance. You should also hold off on opening any new lines of credit right now, as that hits your score as well. Creating too many inquiries on your account won't look good to lenders.
Before you head into your local lender, do your own due diligence by checking your score for any inaccuracies and dispute them right away. Many companies such as Credit Karma can provide tips on boosting your score, and they're free to use. It takes time to build credit, and paying off one or two bills won't cause a spike in your score immediately. Keep paying your bills on time, be consistent and be patient.
4. Shop within your means
Millennials don't seem interested in mini-mansions right now; the extra space is unnecessary, and the cost of utilities and maintenance is a turn-off. Make sure you are firm with your must-haves and know that just because you technically can afford a large mortgage payment, you may want to have more financial ability to make home improvements or be able to save money each month for a rainy day. There is a huge difference between buying a home you can technically afford and buying one that allows for comfortable payments.
At the end of the day, no home is worth compromising on your other important financial goals such as saving for your children's college fund and making sure you're able to contribute to your retirement or other investments.
5. Don't fear the market
By now, most Millennials know at least one person who has lost his or her home. Many had to watch their parents struggle during the 2008 housing crisis, which was primarily caused by predatory lending practices. This crisis ultimately created distrust in the market amongst Millennials, and understandably so.
But lending practices are much different now, and lenders have a much more stringent process for approving applicants. A lender won't be able to approve you for some outrageous home loan with rates you won't be able to handle long term. That said, it's important to do some research on the lender you've selected and make sure you're working with a realtor who understands your financial status and goals.
If you think you're ready to buy your first home, find a local lender who can pre-approve you. This step shows buyers you're serious, and it will give you insight into what you need to have ready before you make that big, life-changing purchase.