A 2015 report shows that millennials are buying homes at a higher rate than any other age group. The ones who will be the most stress-free in those homes will take five steps to ease the transition.
- Millennials Begin Shift from Renting to Buying
- Step #1 – 20-Percent Down Payment
- Step #2 – Expecting the Unexpected
- Step #3 – Balancing Frugality with Foresight
- Step #4 – Credit Cleanup
- Step #5 – Forward Motion
Millennials Begin Shift from Renting to Buying
There is a nasty rumor going around that millennials are perpetually unsure about their current location and so are unlikely to want to buy their own homes. However, according to 2015 data from the National Association of Realtors, that’s not the case. In fact, millennials (78 million people born in the 80s and 90s) are the largest segment of homebuyers currently, representing 32% of that population. What’s more, they make up a full 68% of the people who are buying a house for the first time. Real estate experts expect those numbers to continue to rise after the release of a TD Bank survey that shows almost half of millennial men and women say that they want to become homeowners by 2017.
Both of these market research reports go against the common perception “that they don’t want to buy homes, that they’re the renter generation,” explains NAR survey chief Jessica Lautz. That’s the right view on this age bracket, she says. In fact, “[millennials] are the most optimistic that their home purchase is a good investment.”
Millennials are also the top group in terms of willingness to take on the challenge of a fixer-upper. Houzz released data this summer showing that 62% of millennial homeowners have renovated their houses.
Houzz researcher Nino Sitchinava says the renovations are high among these young adults because they are making a new home their own and are more comfortable with doing some of the work themselves to cut costs.
Boston attorney Dennis Delaney notes that buying is wise for anyone who thinks that they are likely to stay in the same location for the foreseeable future. In addition to building your equity, there’s another value to homeownership: stability. “Having a home base or an anchor in your life is good to ground you,” he says.
Here are five steps that the wisest millennials are taking as they prepare to go out and purchase their first homes:
Step #1 – 20-Percent Down Payment
Financial analyst Andrew McFadden of Fresno, California, says it’s always a good idea to put down a fifth of the home’s cost upfront. That way if the market turns and the appraisal of your house starts declining, you won’t end up in an upside-down mortgage. A higher down-payment also means that your monthly payments drops.
Step #2 – Expecting the Unexpected
While the phrase expect the unexpected may sound like something from a self-help guru or college football coach, it’s actually from the ancient Greek philosopher Heraclitus. In other words, it’s timeless knowledge, and it’s highly relevant to homeownership.
Just as you want a cushion with the value of your house, you also want a cushion for repairing roof leaks and replacing major appliances. McFadden says that it’s a good idea to set aside 10-20% of the cost of your house for continuing, annual home-related expenses: the mortgage, property taxes, homeowner’s insurance, utilities, and repairs.
Step #3 – Balancing Frugality with Foresight
There’s a fine line between being careful not to overspend on your house and choosing a property that won’t make sense for you in five years, explains Milwaukee financial planner Tim Steffen – and that’s especially true for younger adults. “At the beginning stages of your career, you’re probably at your lowest earning point, and your income will continue to rise,” he says.
Obviously you have to be careful to hit the sweet spot, where you aren’t overextending yourself but also aren’t putting yourself in a position where you will want to sell the house before you’ve establish much equity.
Step #4 – Credit Cleanup
You can get yourself additional buying power and (more importantly) a better home loan rate by improving your credit score. One thing you want to do even if you are in the early stages of homebuying is to order a copy of your credit report today. The reason you want to do that right away is because you want to check that everything on it is accurate rather than running into a problem later, potentially creating a stressful snag.
Don’t think it’s likely? Unfortunately, it’s actually common. A 2013 study from the Federal Trade Commission found that 1 in 4 Americans have at least one error on their credit reports.
Step #5 – Forward Motion
Buying a home is a major life decision, so it’s no wonder so many young adults feel unsure about buying. However, at some point, you have to take action if you want to reap the rewards of owning your own place, says Wisconsin-based financial planner Brandon Marcott.
Marcott personally felt uncertain when he initially became a homeowner, but now he is sure he made the right decision – especially because he knows he has a fixed housing payment that a landlord can’t raise. “This is by far my favorite benefit,” he says.
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