Millennials and The First Home Purchase: 5 Ways to Prepare
We know that in many cases millennials are waiting longer to settle down than previous generations to make their first home purchase. However, as the job and housing markets improve and the recession becomes a thing of the past, we are starting to see millennials, ages 24-35, step into the home-buying demographic.
The National Association of Realtors cited that, of first-time home buyers, millennials have accounted for 67% of buyers. This is a growing number in recent years and suggests that this generation is starting to feel more confident and motivated to buy a home.
According to a study by Choice Home Warranty in 2015, 30% of millennials anticipate buying a home in the next 5 years. Most of that group is on the upper end of the age bracket, with the average age being 30 years old.
As millennials prepare for what will be one of the largest purchases they may make in a lifetime, it’s important to start preparing for this endeavor properly.
5 Ways to Prepare for a Future Home Purchase
- Prepare for The Costs Involved
In most cases, a home buyer should anticipate paying a 20% down payment on a home. The average home purchased in 2015 was around $187,000 for millennials and $220,000 overall. That’s an assumed down payment of $37,000-$44,000.
You’ll also need to account for other costs that you may not know to prepare for upfront. There are fees associated with loan applications, inspections, appraisals, in addition to paying taxes and additional costs for moving such as homeowner’s fees and fees for movers and moving trucks.
- Understand How to Increase Your Credit Score
First things first – check your credit. If your credit isn’t great, you might need to think about ways to raise your score. Be sure to pay your bills on time, make more than the minimum payment, and get all of your finances in order. Often, people will open a new line of credit to improve their score. But if you’re planning to buy a house in less than 2 years, getting a new credit card can actually negatively affect your credit score.
- Save & Invest Wisely
Make sure to save in addition to saving for the house. That ensures you have a safety net to fall back onto after purchasing the house. If you deplete your entire savings, you are vulnerable to emergencies or unplanned expenses.
If you have investments, you’ll want to make decisions based on the time frame in which you plan on buying a house. If you’re waiting over two years to make a home purchase, talk to a financial advisor about high risk investments for a good return, but also giving you time to recover if an investment drops. Around two years out before buying, you’ll want to make more conservative investments to assure your money is safe.
- Visualize Your Future Plans
This is the part where I ask your 5-year, 10-year and 30-year plan. Do you know what your life will look like for the entirety of your mortgage? If not, that’s fine! However, it’s important to make some long-term decisions before signing the papers.
One of the main considerations is location. Do you plan on staying in the area for the next few years? If you have ambitions to relocate, then consider the options for renting or selling. Ask yourself if these are viable solutions for the property and for you.
Another consideration is job and income security. No one plans to quit or become unemployed unexpectedly, but it’s wise to prepare for unforeseen circumstances. If you and a partner plan on having kids, you’ll need to discuss what career and salary implications that may have and how that will affect your mortgage.
Are there any other large expenses planned? Do you plan on buying a car? Do you anticipate home improvements or repairs that could be costly? Are there any health issues that you need to resolve? Try to anticipate any large costs that you may incur.
- Set Your Goal and Get excited!
Buying a home can be one of the biggest and most rewarding events in a person’s life. Yes, there are a lot of responsibilities and costs that come with owning a home, but remember to take command of your home buying experience and do not let yourself get stressed or pressured into decisions.
If you would like to speak to experienced mortgage professionals about first-time home buying, give us a call at 866-353-7654 today.