Adulting lesson: Home Buying for Millennials 101
The first question that popped into my head when I started writing this blog was “How did adults start adulting without YouTube and awesome blogs like, “Home Buying for Millennials”, to learn from?” I still have no idea. From one struggling millennial to another, I hope this article teaches you the basics involved in buying your first home, and the steps you need to take to prepare yourself for the adulting avalanche that is home ownership.
These tips and tricks on home buying for millennials may seem overwhelming at first, but it will end up being one of the most important lessons on adulting you will ever learn!
Like the average millennial, you’ve probably lived at home with your parents, spent time in a dorm room, couch surfed a little, maybe you’re currently in your dingy basement apartment faze. But look at you go! You have now decided that it is time to leave the renting world behind and finally buy a place of your own to call HOME!
Step 1: Know your Budget
The first step on the road to owning your own home is knowing your budget! The last thing you want is to get your heart set on the house of your dreams that you simply cannot afford.
A trick to get you looking in the right price range is to look at homes that are no more than triple your annual income. If you are buying a home with someone else, triple both your combined annual incomes to get the price point you should be focusing on. Maybe you will find that you will be looking at a condo for your first home.
If you don’t want to go house broke (meaning you live in a beautiful home that is empty of furniture because you can’t afford any), then your monthly mortgage payment should not exceed 28% of your total monthly income. Remember you will have other expenses to pay each month, like your car, visa, student loans etc.
Step 2. Save Some Cash
When you’ve mentally prepared yourself for the prospect of owning your own home, it’s time to put down the avocado toast and start saving! There are more expenses involved in buying a home than just your monthly mortgage bill. You should strive to save 10% of the cost of your home for the down payment. The more you save, the more money you are able to put down and the less you have to borrow from the bank. That being said, remember that you want to leave yourself some money to cover possible maintenance costs, buy those bar stools you’ve always wanted, and put some fresh paint on the first 4 walls that are YOURS!
Step 3: Find a Mortgage
Just reading the word “mortgage” probably has you thinking “Are you there God? It’s me, a millennial”, but don’t panic! Mortgages are not as confusing as you think they are. What you need to do is find the right mortgage for you and your situation. To do this you need to first find a lender and choosing the right one is key.
Adulting is hard, and home buying for millennials is frustrating so the last thing you need during this stressful time is to feel like just a number. You want a lender that is going to hold your hand, answer all your questions, look at the 400 pictures of your dog you have on your phone, and take the time to explain each and every option available to you.
The most common type of mortgage is a “fixed-rate mortgage”; this means that the interest rate you are paying is set in stone for an agreed upon time period. Before that period is up, you will have the opportunity to speak with the bank about new mortgage rates.
Another form of mortgage is an “adjustable-rate mortgage”. This type has an interest rate that fluctuates with the market rather than being consistent. After shopping around with lenders you’ll get an idea of which mortgage option is best for you and your situation.
Best Mortgage Advice:Overpay! Mortgages typically run for 15 or 30 year terms, but who wants to pay the same bill for 30 years? If you have some extra cash lying around one month, put it towards your mortgage payment! Regardless of the term length you choose, you are allowed to get ahead of your payments and pay it off as fast as you can, depending on the terms of the mortgage you can do this each month or once per year.
Step 4: Get Pre-Approved
To avoid many of the stresses involved with buying a home, just get pre-approved first! This is one of the smartest adulting moves that you can do. You may think that you can afford a specific home, but you will be heart broken when you put in an offer and the bank tells you NO. Getting pre-approved means that the bank has already agreed that they will give you a mortgage for a maximum amount of money. This can give you some peace of mind that you can in fact afford the homes you are looking at.
It is also important to note that the bank may approve you for a larger loan amount than you need. Remember to take a second look at your financial situation before buying the most expensive home the bank will let you buy. Remember sudden unexpected expenses do come up so you will need to be able to get extra money sometimes.
Step 5: Know your NEEDS vs. your WANTS
Now that you have an idea of what you can afford, what is it that you NEED? Remember that your first home does not have to be the be-all-end-all of homes for you. Maybe your dream is to have a giant walk in en suite with a soaker tub and separate shower (ok that’s MY dream), but financially you just aren’t there yet. Don’t be discouraged!
Think of your NEEDS over your WANTS. You may NEED 2 bedrooms for yourself and a spare, but do you NEED a third for your wall to wall display of superhero POP’s? (the answer is no…) A starter home should be one that suites your needs.
Some important things to consider are:
- Number of bedrooms
- Floor plan layout
- Proximity to work and schools
- Yard size
- Style of home (2 story, bungalow, etc.)
- Distance from work or certain schools
- Local transportation or highways
Try to look beyond things that can be fixed and focus on the things that can’t. You can always rip up a floor, splash on some paint or renovate a bathroom. It’s a little harder, and in most cases impossible, to make a room bigger, increase the size of your yard, add square footage to the home or change the layout of your kitchen.
Step 6: Call an Agent!
Once you’ve got your head wrapped around what you can afford and what you are looking for, it’s time to call an agent! A real estate agent will be able to tell you what houses you can afford, which ones cross the most off your NEEDS list and maybe even find one that crosses off some of your WANTS. It’s the agent’s job to get their hands dirty in the negotiating prices, find houses for you to look at, and make this HUGE step as stress free and easy on you as possible. Being a millennial in this day and age isn’t financially easy, but hiring an agent is well worth their price. They know the business, they know the market, and they know how to find you the best bang for your struggling buck.
Remember to try and enjoy the buying process! After all, buying a home for millennials means you are finally an adult!
Kristen Mahon, Assistant for the Wes Ayranto Team