If you’re a millennial, you might be wary of purchasing real estate due to the cost of your student loan debt, navigating mortgage credit, facing the rising values of homes, or dealing with other financial concerns. It can be daunting, but don’t let issues like these turn you off on the idea of home ownership. Here are 5 tips to get you started.
Assess Your Finances
Depending on where you are located you may actually pay less for a mortgage each month than you do in rent. Take a look at your finances and your budgets, and calculate the numbers on how much you can afford to put down on a house, the amount you need to finance, your credit score and estimated closing costs. Remember to add lines for ongoing expenses for home ownership, such as homeowners insurance, taxes repairs, and other expenses. All of these numbers are important factors in determining whether or not you can afford to buy. It’s also a good idea to get prequalified for financing before you begin checking out houses and make offers. The prequalification process is simple. You can shop online at a lender website and input your finance numbers and credit history to determine the amount you qualify for.
Get Help from a Professional
After running some numbers, talk to a real estate agent who can help you further determine what you can afford, show you homes, and can give you an overall understanding of the real estate buying process. Since you’re new to the process it is vital to find an agent who is knowledgeable and trustworthy. You want someone who is active but can make the time for you. If you know any experienced homebuyers, it’s a great idea to ask for a recommendation. You can also search online for recommendations and reviews of agencies and agents. Make sure to vet and interview several different agents before settling on one. When you meet with real estate companies, have some questions ready for the agents, such as:
- How long have you been in the real estate business?
- How many homes have you sold this year?
- Have you worked with many first-time buyers?
- Can you provide recent references that I can contact?
- How many buyers do agents work for at a time?
- How do you determine which homes may match our wants and needs?
- How do you provide information about these possible homes?
- How will you communicate with me?
- What are your fees and how do I pay?
Ask for Advice from Home Buyers You Know
There’s a learning curve to buying your first home. You’ll need to do your homework on the steps involved. What better way to learn more about it than by talking with friends and family who have already been through the experience? Set up a lunch date with your parents, grandparents, close friends or mentors to pick their brains about home buying. They may have purchased several homes over their lives and can impart what they’ve learned about the process, as well as the financial benefits of homeownership, such as tax deductions and building equity.
Make a Plan to Save for a Down Payment
The down payment on a house is very important. The more money you can come up with for a down payment, the more favorable your loan terms will be. A typical down payment is 20 percent, but a larger payment can save you thousands of dollars over the life of the loan. To ensure you get the most out of a loan, there are several actions you can take:
Pay down your debt
Buying a house is the most expensive purchase you’ll make, so it’s a good idea to eliminate as much debt as you can before you take on a mortgage. Try paying your debts in order from smallest to largest. As each debt is paid, you’ll be able to reallocate it and pay off the next smallest balance with additional funds. This method is often referred to as the snowball effect. Getting rid of your debts will then allow you to save all that money you spent to pay what you owed each month.
Improve your credit score
You can get approved for a loan with a lower credit rating, but the better your score is, the better your rate will be rated. There are a variety of free apps, like Credit Karma, that that will let you know your credit score, break down the grades and offer suggestions for improvement.
Stick to your budget
Determine your monthly income and your expenses, then make a budget. Your leftover money should go to savings. This may be difficult at first, but staying on top of your budget and adjusting it as you go, will put you on a path toward saving for a house.
Ask for financial help
When you talk to friends or family about their experiences with home buying, consider asking for help with the down payment on a house. If your relatives can help boost the amount you put down, you’ll be in much better financial help long-term.
Don’t be in a rush to find a home. Once you make the decision to buy you’ll be invigorated and ready to find a place as soon as possible. It’s great to be gung-ho, but don’t get blinded by the excitement. Take your time and look at as many properties as you can, so you can figure out what you really want in a house, don’t overpay, and don’t get stuck with something that doesn’t fit your lifestyle. Before you even start viewing houses, create a home buying checklist to prioritize what you’re looking, from absolute essentials to “nice-to-haves.” If you do start a negotiation process with the owners, make sure you are happy with all the terms before committing to buy. Don’t be pressured and don’t settle. There will always be another house.