5 First Time Home Buying Mistakes All Millennials Should Avoid
Not only is the emergent millennial generation currently flooding the workforce, but this young demographic has also inundated the real estate market as well. If you’re between the ages of 18 and 34, you’ve likely had a Facebook feed plastered with “Our first home!” posts for some time now. While it is so exciting that so many young people are buying homes, we millennials also risk lacking the necessary experience to make informed financial decisions, putting us at a heightened risk of rushing into investments that we can’t afford in the long run.
So, whether you’re a recent college graduate or twenty-something professional, make sure to sidestep these common pitfalls when purchasing that new house to call “home.”
1. Handling the Search Process By Yourself
In an attempt to pinch pennies, many untried buyers forego hiring a realtor and decide to scope out properties on their own instead. Choosing this route can ultimately backfire during the negotiation phase, though. Without a professional buying agent, legally bound to support your interests, you risk being taken advantage of by a listing agent who helps the current homeowners maximize their price return.
“Rather than interviewing a number of agents to explain our needs, preferences and limitations, we worked with the first listing agent we called off a sign. She was kind enough to sell us the second home she showed us—coincidentally her other listing,” explains Paul Moore, licensed realtor and founder of Smith Mountain Homes.
2. Forgetting to Factor In the Closing Costs
When they hear industry-specific terms like inspection fees, title, escrow, and appraisals, as well as other aspects of a typical real estate transaction, most young people are unfamiliar with the complex implications. In fact, a survey conducted by the ClosingCorp of San Diego has determined that two thirds of millennials don’t take closing costs into account when purchasing their first home. Since these required payments range between 2–5% of the total expenditure, unprepared buyers are often blindsided upon closing day.
3. Misjudging Your Down Payment Amount
The urge to borrow several hundreds of thousands of dollars from your local bank and exhaust your entire loan on the down payment is both appealing and convenient. However, first-timers who sink large sums of money into an initial home purchase will soon experience the harsh reality of exorbitant mortgage fees.
Instead of barely affording these month-to-month expenses and consequently becoming “house poor,” create a budget that details your insurance, groceries, student or credit loans, utilities, emergency funds, saving plans and other non-negotiable costs before determining what you can afford to pay for a down payment. Conor Richardson, Certified Public Accountant and the blogger behind Launch Your Finances, suggests putting 20 percent down, on average.
4. Overlooking Market Trends & Forecasts
For young budget-conscious home buyers, timing can make all the difference in finding an economical option. That’s why savvy shoppers avoid the housing market throughout prime inventory months and begin their search during the off-season when competition is less cutthroat and prices are proportionately lower.
The optimal money-saving timetable is from November through January, says Mia Simon, a Silicon Valley-based real estate expert. She also warns that average costs will rise significantly in the spring months.
5. Settling For an Impulse Buy Too Quickly
In their eagerness to buy a home, coupled with a lack of foresight on long-term investments, millennials often make a decision before viewing all available properties within their price range.
Although many people do, in fact, have emotional responses to their so-called “dream home,” balancing this excitement with a well-founded dose of pragmatism will ensure that you remain as selective as possible—within reason, of course.
“My wife and I once decided to buy on a Saturday, then looked at two homes on Monday, and made an offer the next day. In retrospect, that wasn’t a smart decision,” says Moore.
Rather than charging headlong into this momentous transaction, it’s important that millennials first consider every viable option, brace themselves for added expenditures, understand how the market fluctuates, and enlist professional assistance. These strategies will give first-time homebuyers a competitive edge and help them secure financial footing.
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