JD’s Millennial Minute: Real Estate Tips for Recent Grads
If you are graduating and heading off into the real world this summer, you may know exactly what’s next. More than likely, though, you’re still trying to figure it all out. Recent grads, along with the rest of millennials, have earned a reputation as the “Peter Pan generation” – delaying a host of traditional milestones like marriage or having kids. But one of these – homeownership – may not be as out of reach as you think. Keep reading for a variety of options and approaches that may help make that first investment feel less daunting.
Home Sweet Home
I know what you’re thinking, “Real estate? I can barely afford to pay my student loans!” And you aren’t alone – last year an estimated 41% of first-time homebuyers had some form of student debt. This, coupled with a stagnant economy, has led to limited savings and unstable incomes among millennials, which means home buying has been delayed for more pressing commitments. With the average student debt approaching $30,000, many younger people automatically think that they don’t have the liquid capacity to pay a mortgage, even if they could qualify for one.
Yet, this doesn’t mean that our generation has given up on laying down a welcome mat. In fact, for the past two years millennials have comprised the largest group of homebuyers in the country. With so much buying power, millennials have reshaped the real estate market to fit their needs. Utilizing technology to assist their hunt, the latest generation of home-buyers are savvy investors who have been molded by fiscal burden.
Saddled with Debt
Student debt, the 1.3 trillion dollar elephant in the room, is not an insurmountable barrier to homeownership, but planning around your debt is key. A mortgage lender is going to look at student loans the same way as any other debt. Your debt-to-income ratio (DTI) is one of the chief issues in determining whether or not you can secure a mortgage, which means your two main options are to increase your income or decrease your debt.
I know, it’s easy to say “just make more money!” but there are a few ways to go about this. Taking a private loan out from a family member with reduced interest and a longer repayment time is one option. If you’re married, you can also refinance debt between spouses to improve your DTI. Finally, you can look for a lower mortgage or down payment. This may mean you don’t get into your ideal house right away, but will help you along on your way.
Seek Professional Help
One of the most popular trends among millennials is a shared love of real estate agents. Agents supplement online research with real-world knowledge about the inner workings of real estate. Even if you’re only tacitly considering buying a home, chatting with a real estate agent is a great place to start. Ask your friends and family for references to find an agent you can trust.
A Smart Approach
If you’re a recent college grad, a two-car garage and white picket fence may not be achievable for your first home. Instead, try to look at your first purchase purely as an investment. Understand what a starter home is and have a plan to resell it before you even consider buying. A great way to mitigate a steep mortgage payment is by investing in a rental property like a duplex – you can live in one side while your tenant’s rent check goes toward the mortgage.
No matter what you do, though, make sure not to sink every penny of your savings into that first down payment. There are countless associated costs with home ownership, and you should always have money set aside to address them. You don’t want to end up behind on your mortgage if a pipe bursts.
Investing in the Future
Buying your first home is part of the American experience. While it may seem impossible for many indebted college grads, it is actually far from it. By looking at real estate as an investment instead of more debt, millennials can set themselves up for a much more stable financial future.
Are you a millennial? Make sure to check out these other installments of JD’s Millennial Minute:
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