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For Millennials, Buying A New Home Is Very, Very Possible
Millennials, the largest population cohort now living, are in their prime homebuying years. Ranging in age from their late 20s to their early 40s, they were, in fact, the largest number of homebuyers until this year. Continued disruptions from the pandemic, including housing shortages and rising home prices, along with delayed “life events” such as marriage and children, have put a damper on this generation of new homeowners. So the question is, is there a path to millennial home ownership?
Tips to Help You On the Path to Millennial Home Ownership
There’s no arguing that financial constraints are the biggest impediment to millennials buying homes. Student debt and an inability to accumulate enough cash for a down payment are making buying a new home seem like an unlikely proposition. But there are steps millennials can take to get started on the path to home ownership.
- Pay down your debt. The most effective way to save money for a new home is to pay off your debt, whether it’s student loans or credit cards. That means consistently paying down what you owe month after month. In the end, not only will you have more money in the bank once your debt is paid down, your credit score will look better, too.
- Make a budget – and stick to it. Creating a budget and sticking to it will help manage your expenses and keep you on track. A budget will also help you figure out how much house you can afford. (Keep to your budget after you move, too. In a Bankrate survey, millennial homebuyers’ top regret was not factoring in unexpected maintenance costs. You’ll need to be ready to cover whatever issues come up.)
- Save for the down payment. One of the lasting effects of the Great Recession was more stringent requirements from mortgage companies – including a 20% down payment. As home prices have risen, that amount has become less feasible for millennial buyers. Since 97% of millennials buy a home with a mortgage, a strong down payment is vital. (27% of younger millennials say saving for a down payment is the “most difficult step” of the homebuying process, according to NAR.) Having 20% tucked away could mean a lower interest rate and bypassing private mortgage insurance. So, be patient and keep saving. Start with a clear plan. After you have a goal in place, it will take less time than you think.
- Find a good real estate agent. Although the housing market is showing signs of moderating, having someone to guide you through the process is still a good idea. If you’re a first-time homebuyer, it’s even more important to have someone who understands your needs, concerns, and stresses. Once you start shopping, don’t be tempted to buy a home that’s out of your price range. No home is worth sacrificing other financial goals.
- Shop smart. Look around for the best mortgage deal. Look beyond interest rates, to the all-in costs and other terms and conditions on a loan. Location affects housing prices, so you might need to adjust your home search parameters to neighborhoods you hadn’t considered. Buying a home in a neighborhood poised for growth may be a good investment. Buy a smaller home. This is a popular trend for millennials, especially if you’re a first-time buyer. A smaller house means lower utility bills, as well as smaller maintenance and home improvement costs.
Ten Essential Home-Buying Terms To Know
Financing the purchase of a new home can be a very intimidating process, especially if you’ve never done it before. Knowing what financial terms mean can help make the process less overwhelming, and ensure that there are no misunderstandings. Here are a few of the most essential home-buying terms a new millennial homebuyer should know:
- Equity | The difference between the market value of a property and the owner’s indebtedness (i.e. mortgage).
- Conventional Loan | A loan neither insured by the FHA (Federal Housing Administration) nor guaranteed by the VA (Veterans Affairs).
- FHA Loan | Loan insured by the Federal Housing Administration. If the buyer fails to repay the loan, the federal government pays the lender for any losses. Because of the government’s insurance, lenders require a lower down payment than they would with a conventional loan.
- Adjustable-Rate Mortgage (ARM) | A mortgage that offers a lower initial rate and lower payments, but adjusts and fluctuates along with interest rates at prescribed times and sometimes with prescribed limits for the life of the loan.
- Annual Percentage Rate (APR) | The annual cost of a loan to a borrower. Like an interest rate, the APR is expressed as a percentage. Unlike an interest rate, it includes other charges or fees (such as mortgage insurance, closing costs, discount points) to reflect the total cost of the loan.
- Interest | The cost of money. It is usually shown as an annual percentage (e.g. 4.5 %). You pay interest when you borrow money or are paid interest when you save and invest money.
- Interest Rate | An interest rate is the percentage of the outstanding balance of a loan that you are charged for borrowing money, usually expressed as an annual percentage rate.
- Lender | A lender is the financial institution or agency that loans you money.
- Mortgage | The legal document that pledges real property (such as a home) to the lender as security for the repayment of a debt.
- Home Owners’ Association (HOA) | A nonprofit association that manages the common areas and services of a community.
- Closing | The closing process with all of the parties in the real estate transaction. At closing, you sign all of the paperwork required to complete the purchase, including loan documents.
- Closing Costs | Costs involved with the closing. May include down payment, title fees, appraisal fees, attorney fees, inspection fees, and points bought to buy down interest rate.
Contact Bosgraaf Homes Today!
There are so many positive benefits that come with buying your first home. If you’re looking for a home with modern floor plans, exceptional craftsmanship, and great value, look no further than a new Bosgraaf home in West Michigan. For generations, we’ve helped families find their perfect home where they can enjoy these benefits and more. And we can help you too! Take a moment to browse our homes and let us know when you find one you love or if you have any questions.