Are you a young adult looking to buy your first home? Are you trying to understand the real estate market but keep getting lost because it’s your first time?
More and more millennials (people born from the 1980s to 1990s) are buying homes these days and first-time millennial homebuyers can face many problems when buying a house since they don’t have any experience. Before breaking into the market, you need to be aware of several things like the need for agents, credit scores, and down payments.
Millennials in the Market
There are about 2 ways to buy a house. You can either purchase a home with cash or pay a mortgage every month. A one-time purchase is too expensive for most US citizens since they don’t have that kind of cash to spare so they prefer to pay a mortgage.
Aside from the high cost of homes, Millennials face other problems that prevent them from buying their first home. They usually have student debts piled up and want to live in urban cities where rental and mortgage prices are high and the loan giving conditions in banks are strict. (1)
5 Tips to Remember
1) Hire a Real Estate Agent
Hiring a real estate agent will save you a lot of time and money in the long run. According to the National Association of Realtors, about 88% of first-time homebuyers hire an agent to help in the purchase of their house. (2)
First-time buyers can easily get confused in the market and be swindled out of their money if they’re not careful. Find a good agent, one who cares about your bank balance and has experience in the market. An agent will help in your transaction – down payments, mortgage deals, loans, etc – and will lower the stress on you, the buyer.
2) Credit Score Update
Before buying your first home, you need to improve your credit score. A Credit score has a value between 300 and 850. It’s calculated based on your credit (debt level, number of open accounts, etc) and sellers prefer buyers with a good or high credit score.
To improve it, you first need to pay off all pending debts like student loans and prepare a good down payment – about 10%-20% of the whole price. A higher down payment will reduce the interest and help pay off the principal on the mortgage quicker. (3)
It might take you years to gather a 20% down payment, so you can either wait a couple of years or take out a loan from a lender. You can do both too – gather a fairly good down payment and apply for a loan as well. Sellers look favorably on buyers who have a loan plan.
FHA loans (the Federal Housing Administration) require a minimum credit score of 580 while the USDA loans (issued from the U.S. Department of Agriculture) have a credit score of 640 and above. Similarly, VA loans (given by the U.S. Department of Veterans Affairs) have no particular requirements for the credit score, but are only given to active-duty members of the military, family of military members, or veterans. (4)
4) Find Your House
To find your house, you need to research houses for sale. An agent will help you locate a house based on your requirements as well. Before booking house tours, you should research and make a list of what you want in a house: the things you can’t live without and the facilities that you want but aren’t a necessity.
Atany point, you should only book around 5-7 houses to see. Your agent will go along with you and guide you to make the best choice. Check out the surrounding location of all the houses for important places like pharmacies, grocery store schools, and parks. This will help you to narrow down the list.
5) House Inspection
After you’ve narrowed the house range, do a deep house inspection before deciding on a final choice. Check the roof for damage or venting problems and the attic or basement for damage as well. Go through the heating and cooling systems i.e. the HVAC filters, electrical systems, plumbing and drainage, appliances like ovens, dishwashers, and fridge, and check if the house is energy-efficient, which is related to the cooling and heating of the house. (5)
Purchasing a first-time home can be hard for millennials, but not impossible and the rent-to-buy approach (paying mortgage) is more economically feasible for them. Research everything you need to do on your end and contact an agent for guidance. Be very vigilant in the entire process as you hire an agent, choose houses, and take loans, etc.
- “The Real Reasons Millennials Aren’t Buying Homes”, Investopedia, Aaron Hankin, September 1, 2020, https://www.investopedia.com/news/real-reasons-millennials-arent-buying-homes/
- “Highlights From the Profile of Home Buyers and Sellers”, www.nar.realtor, NAR, March 5, 2020, https://www.nar.realtor/research-and-statistics/research-reports/highlights-from-the-profile-of-home-buyers-and-sellers
- “5 Tips for Millennial Home Buyers”, daveramsey.com, Rachel Cruze, October 21, 2020, https://www.daveramsey.com/blog/millennials-and-homeownership
- “The differences between FHA, VA, and USDA mortgages”, HousingWire, Aly J. Yale, November 16, 2020, https://www.housingwire.com/articles/the-differences-between-fha-va-and-usda-mortgages/
- “A Home Inspection Checklist for New Buyers”, PennyMac Loan Services, Kristin Demshki, September 1, 2018, https://www.pennymacusa.com/blog/home-inspection-checklist-for-buyers-major-systems