Five Tips for First Time Millennial Home Buyers
Student loan debt, lack of a down payment and even remembering the “financial carnage” of the last economic downturn, are all reasons millennials offer for not buying a home versus renting. “It’s not that they don’t want to buy a home. They just believe they can’t afford to,” said Dan Green, CEO of Growella, a financial site that “pairs simple explanations with actionable steps so readers can make better, stronger choices with their money.”
Green is also a former mortgage lender who believes with the right preparation and armed with the right knowledge, most people can afford a home. His primary passion is sound financial preparation. “We just want to see people of all ages and backgrounds make smart choices with their money,” he said.
Green, like many others in real estate, thinks there are more options for millennials than they realize. In fact, it’s been cheaper to buy than to rent since about 2012 or 2013.
“Everybody says, ‘millennials are renting because no one can afford to buy,'” he said. “But since about 2012 or 2013 when mortgage rates dropped and shifted the balance between rent versus buy. It’s actually cheaper to buy now. The cost of home ownership fell, but sometimes it takes a while for that message to work its way through the economy.”
But Green doesn’t really try to convince anyone to buy or not buy a home.
“When you’re trying to give objective advice you never want to tell someone what to do with their lives or what the potential financial advantages are. Instead, I ask them about their lifestyles, what they want. Where do they see themselves in five or six years. Based on that I can say, ‘It sounds like owning/not owning a home would be best for you because…”
For millennials who are testing the waters of home ownership, Green offers these five tips:
(1) The best way to shop for a home is by “monthly budget” not by price.
“When you shop by price range, you put yourself at risk to overspend,” he said. A monthly budget makes the purchase more real as well as more practical. If you’ve never created a monthly budget, sit down with someone who has. Or, talk to a mortgage lender, banker or another financial expert who can teach you about what to expect in terms of insurance, maintenance costs, and related home expenses. Money expert Dave Ramsey recommends keeping your mortgage payment to no more than 25% of your monthly take-home pay on a 15-year fixed rate mortgage. Ramsey says don’t forget to save a little extra each month to cover regular maintenance as well as well as future home improvements and furniture replacement.
(2) Statistically, most people move or refinance within 6 years – even millennials.
“So, don’t turn your back to the possibility of a 5- or 7-year adjustable-rate mortgage,” Green said. One of the things Green, and other realtors and mortgage lenders said was that many buyers don’t think to explore financing options with their lender. “That’s what we’re here for,” he said. “Talk to us and we can help you explore your options.”
(3) Get pre-approved for a mortgage, and be ready to share your social security number and income with a lender.
“You’re not getting pre-approved to find out what you already know, you’re getting pre-approved to find out what may get in the way of your buying a house,” Green said. “This pre-approval process gives you a chance to work on your credit rating, or tend to the things you didn’t know would affect your approval. It’s better to find out in the pre-approval process so you have time to fix things.”
(4) Get your own real estate agent – never use the seller’s real estate agent.
The seller’s agent is legally required to get the seller the “best deal possible.” The agent can’t do that for two people simultaneously. You may hear that it will “be cheaper” to just use the same agent, but it’s actually not. In some states, it’s even illegal.
(5) Avoid For Sale By Owner homes, as a first-time homebuyer.
It’s tempting to think buying from a private party can save you money on a down payment or monthly mortgage, but that’s unrealistic thinking for a first-time home buyer.
“There are two kinds of people who sell their own home,” Green said. “Some of them are people who have a lot of experience selling homes like a former or current realtor. The other type tends to be people who don’t know the process and who don’t trust realtors, or who think they can save money by not using a realtor. Neither are good options for the first time homebuyer,” he said. “Either situation can be terrible. As the buyer, you’re at an information disadvantage with the experienced home seller. You’re more likely to buy a house with issues, or pay too much. When you buy with a realtor there’s an ethics code where realtors need to disclose things. You don’t get that with a private sale. If you’re buying from someone who doesn’t trust real estate agents, you’re running the risk of having a disorganized process. It takes a lot of people to coordinate a home sale. It’s not just the homebuyer and the seller. There are attorneys and title agents, appraisers, and home inspectors. For someone who doesn’t have the experience of coordinating all that, it pushes back to the homebuyer and it makes things difficult.” Green said there are some transactions that go smoothly, but believes they’re in the minority.
If you have questions about getting into your own home, talk to a mortgage lender, Green said. “Lenders help people get the money they need to buy a house. We’re here for you not just to loan money, but to understand the process.”
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