Millennials Wonder…Will I Ever be Able to Afford a House?
The FED’s recent rate hike, tight housing market and other factors leave many Millennials wondering – will I ever be able to afford a home of my own?
This rising generation is waiting longer than ever to marry and have children, and having fewer children once they do start a family. More of them are continuing their education past high school, which means they’re saddled with hefty student loan debt right about the time they’re settling into careers and considering a home purchase. Rental rates – in the Greater Denver area and across the country – have skyrocketed as the housing market has gotten tighter, so renters are able to put less money into emergency funds, retirement accounts and a piggy bank designated for the future down payment on a home.
Other than sharing the sturm und drang of this situation on social media, what can this group do to rise above the challenges preventing them from entering the housing market? Read on for tips on how the Millennial in your basement (or renting the apartment next door or bunking on campus) can pick herself up, dust herself off and prepare for home ownership.
Clean up that Credit. The thing about youth is, it lacks experience. If you went out and got yourself a couple of credit cards, a car, a personal loan and maybe bounced a few checks for good measure as a poor broke college student, quit doing that and start digging yourself out of the hole. There’s no shame in admitting you don’t know how to clean up your credit. Ask a trusted friend, colleague or mentor for advice or referrals to a service that can help, then take action. And if you have no credit, research what you need to do to build a positive credit history from scratch – before you start house hunting.
Scrounge up a Down Payment. Traditional financing will require a 20% down payment to avoid the additional expense of PMI (private mortgage insurance.) One good way to plan your extra savings is to use an online mortgage calculator to figure out what you can afford, tally other likely costs of home ownership like HOA + utlities, and start “paying your mortgage” now. If your rent + utilities is $1500 per month and the mortgage you can afford + other housing expenses = $2000, begin putting $500 per month away as soon as possible. This will help you save up toward the down payment, and when you do purchase a home, you’ll already be used to the monthly expense.
Educate Yourself about Home Ownership. Home ownership is not “renting with different paperwork.” The expenses, challenges and responsibilities of home ownership vary greatly from those of a rental property, and you should know the ins and outs of home mortgages, homeowners insurance, how an HOA works, how owning a home will affect the rest of your financial life, and have a plan in place for what to do if you lost your job, became ill or needed to move suddenly. Life happens – whether you own a home or not. Before you make the largest financial investment of your life, know your stuff.
Consider Your Lifestyle. Buying a home in your 20s is different than buying a home in your 30s, 40s or beyond. Are you single now? What will you gain or lose if you meet someone and decide to sell the home in three years. Are you entrenched in a career with a particular company, or are you on the lookout for the next great thing? A mortgage company will want to see steady job history, so don’t change jobs close to when you’ll apply. In addition, consider whether the size, price and location (location, location) of your home search will be a fit for the next five years. If you aren’t a millionaire investor, you might not be financially prepared to sell and move in a year or two. Purchase a home when you are reasonably certain you’ll be happy for a few years time.
Be Realistic. Owning a home is still the American dream for many people, regardless of age, level of education, religion, cultural heritage – owning a home of one’s own is a big deal. Dream big – but plan realistically. You may have grown up in a five bedroom McMansion with a spacious yard and professional landscaping, but your first house might not fit that ideal. Know which five or so items are non-negotiable on your list, and don’t begin the search for your home until you are pre-qualified for a home loan and have selected a Realtor to work with. If you fall in love with an out-of-reach home, the home you end up with will feel like settling. If you wait to begin your search until you know what you qualify for and have done some soul-and-pocketbook searching to know what you want, you’ll fall for the right home – a house you can afford that meets your needs for the next 3-5+ years.
The Meyers Group