What younger generations should consider before buying their first home
While millennials aren’t buying at the rate previous generations were at their age, they still contributed $514 billion to the housing market last year, and are the largest group of homebuyers in the United States, according to Zillow. While some young people aren’t buying homes because of affordability issues, others are looking at a home as an investment. If you’re in your 20s and hoping to buy a home, whether for investment reasons or otherwise, here are some things to keep in mind.
Preparing to Make the Investment
There are a few things all young people should think about before buying their first home. Start with a stable career in a location where you want to live, minimal debt, and prepared for the differences between renting versus owning, including being mentally prepared for the tough parts of owning a home, like mowing your own lawn and handling any needed repairs. Having a solid nest egg of savings is a step in the right direction. However, if you’re struggling to pay down debt, your financial efforts should go toward bringing debt down and your credit score up before thinking about a mortgage. One exception is student loan debt, which doesn’t typically count against you when buying a home.
The Washington Post reported that 85% of millennial buyers viewed their home purchase as a good financial investment. Millennial buyers are also looking into more affordable neighborhoods, which because of their investments could become expensive, more desirable neighborhoods in a few years. In the post-recession climate, many millennials are approaching real estate as a way to build wealth, without the risk.
Apply for a Loan
If you’re ready to buy in a certain area, get to know the market and figure out what you can afford. Start by getting prequalified for a mortgage so you have a realistic idea as to budget. This mortgage calculator from Bankrate can help you see what monthly payment you can realistically afford. Next, LendingTree can help you shop around for different lenders to see who has the best rates.
People in their 20s might want to consider an FHA loan, where they only have to put 3.5% of the purchase price down on a home. FHA loans are issued by lenders who are federally qualified, and they’re insured by the Federal Housing Administration. That insurance helps lenders offer a better deal, and enables those who can’t make large down payments to still be able to buy a home.
Buying a home is a big investment, but for those who feel settled and are financially prepared, it can make more sense than renting. If you think you’re ready to purchase a home in your 20s, the lawyers at Anselmo Lindberg & Associates can help walk you through the process.