The American dream of homeownership is a powerful one. In recent years, it has survived economic downturns such as the Great Recession, as well as a housing market in slow recovery. Even better, with record-low mortgage rates and property prices, this is a great time to be looking to buy your first home. If you are a millennial, it may be time for you to finally stop paying rent, and to begin investing in your first real estate purchase. However, the process of buying a home is filled with obstacles. Luckily, the experienced professionals at Scott Jones Real Estate are here to help. Keep reading for a millennials guide to buying a first home.
Do the math
Your first step should be to make sure that you’re in a position to afford a home. It’s not enough to have a healthy savings account. Regardless of the state of the housing market or economy, mortgage brokers usually follow the 28/36 rule. This rule states that your housing costs, such as your mortgage payment, insurance, and property taxes, should not claim more than 28% of your take-home pay, while 36% of your income should not be going to other debt, such as car or student loans.
Numbers that skew too wildly in either direction may indicate elevated risk to your bank, which may give them pause when reviewing your mortgage application. Lenders will also look at your credit history and credit score. If you have bad marks on your credit record or if your credit score could use some improving, take the time to get those fixed before you dive into your house search. Making yourself look as good and stable as possible on paper will make a good impression on your lenders, will make your broker’s job a lot easier, and will be a load off your mind when you are focused on other issues around finding your home.
Mainly, you want to appear as though you can take on the added responsibility of a mortgage and mortgage payment without missing a beat, financially. Your credit history, your savings, and how you handle your monthly income vs. expenses proves your commitment to stability.
Get and stay organized
Your realtor will thank you if you have all your essential documents in order. Before you contact us, make sure you have, or can order, hard originals or copies of things like your government-issued identification cards, recent credit report, employer verification, w-2’s, tax returns, and bank and asset statements.
If you don’t have one already, adopt a system to keep these forms of identification and verification organized and safe.
Build a healthy down payment
The housing bubble was a hard lesson for many lenders. As a result, fewer lenders are open to offering 100% financing, or anywhere near it. So, most potential homebuyers are wise to put down as much as possible. Not only will a substantial down payment help you qualify for favorable loans and loan terms, the amount of your down payment determines the duration of your mortgage and your monthly payment against it.
At the low end, a down payment of 3% is acceptable to many lenders, while 20% is on the high end. The more you can put down, the more you will save over time. If you can, it will be worth it to spend some time building the most significant down payment you can.
Don’t forget about taxes, insurance, closing costs and other expenses
These are necessary expenses that always seem to sneak up on homebuyers. But, they are too important to not take into account. These expenses quickly add up and can push your home out of your price range.
Take a moment to calculate your insurance and tax collections rates, which vary by state. Your result may require you to adjust your expectations or to plan ways to try and reduce your insurance rates, such as upgrading or renovating parts of your home, or bundling your home insurance with your car or life insurance.
Closing costs, meanwhile, are a whole different ballgame. They include fees like origination, underwriting, appraisal, title insurance, wire, and courier fees. Also, there is generally no way to ease the burden of closing costs, which is why they put many a dent in new homeowner’s budgets. They should never be too far from mind when figuring out what you can spend to get yourself into your new home.
This is where an expert, licensed real estate agent, like the ones at Scott Jones Real Estate, will prove to be worth his or her weight in gold. A real estate agent dedicated to your home search will conduct detailed property searches on your behalf, to comparison shop houses in your target area. Their research will help you discern what a fair price on your target home, which can save you a lot of money is.
Carefully consider your new neighborhood
As a millennial, you likely have an open mind about what it’s like to live in different, emerging parts of your town or city. However, you still need to know a lot about which neighborhood is right for you before you commit to purchasing a home. Take the time to research, or have your licensed agent research on your behalf, the value of properties surrounding your potential new home. Knowing the value of the neighboring properties will tell you a lot about the appreciation you can expect in your home, as well as the difficulty you may expect to encounter when it comes time to sell.
General home-buying tips that can help you
- Get your credit score into the best shape possible. A good credit score will net you lower mortgage rates, which saves you money and enables you to get lower monthly mortgage payments.
- Ensure that buying a home will work with your financial life and goals. Enlist the help of a financial advisor if you need to.
- Work with licensed real estate professionals who are experts in your target area.
If you are interested in buying your first home in the Ontario or Inland Empire area, contact us today to see how we can help you!