The Millennial Home Buying Guide

    If you’re a millennial considering buying your first home, you’re not alone. Due to the age range and size of this group, millennials are the largest generation of home buyers right now, and that’s great news! If you want to make sure your home buying experience goes as smoothly as possible, we encourage you to take a look at our home buying guide before you begin your home search.

    Are You Ready to Buy a Home?

    First, consider if you’re ready to buy a house. As you might already know, owning a home has many benefits, but it’s important to ensure you’re ready to buy before you embark on this important milestone. If you’re not sure, let our home buying guide help you navigate this point.

    You can start by asking yourself some questions. For example, are you only buying because a friend or relative told you it’s a good idea? There are lots of great reasons to buy, but that’s not one. On the other hand, if you can say yes to the following questions, you might be ready to buy a house soon:

    • Is your income stable?
    • Can you pay all your bills on time?
    • Do you have a plan to pay off debt?
    • Do you have money in savings to help with a down payment, home repairs, etc.?
    • Are you prepared to stay in the same home for five years or more?

    If you’re not sure about your answers to these questions, don’t worry. Even if you’re not quite ready to buy now, we can help you get there so you can achieve your goal of becoming a homeowner!

    Figure Out How Much You Can Afford

    Now that you know you’re ready to buy a house, it’s time to figure out how much home you can afford. The answer is different for everyone, but in general, lenders recommend that you spend no more than about 28% of your gross monthly income on your mortgage.

    Fortunately, there are several online mortgage calculators you can use if you’re not sure how to determine how much you can afford to spend on a house. Home affordability calculators take several numbers into account, including the following:

    • Your annual income
    • Monthly debt
    • Desired loan term
    • Down payment
    • Interest rate
    • Homeowner’s insurance
    • Real estate taxes

    So as long as you have this information on hand, you can plug in the numbers to find out what you can afford for your mortgage. Note that home affordability calculators let you play around with the numbers, so you can easily see how a larger or smaller down payment or loan term can drastically affect your monthly payment.

    For instance, putting 20% down will get you a lower monthly payment than if you put 10% down. But that means you have to have thousands of dollars ready to spend upfront when you buy your house. If that sounds unrealistic for you right now, it’s a good idea to focus on bringing that down payment up before you buy a house. Many people increase their down payment with the following methods:

    • Setting aside tax refunds
    • Getting a second job
    • Asking for a raise at work
    • Withdrawing funds from an IRA
    • Selling items they no longer want

    It’s good to get as close to 20% as you can for your down payment so you can keep your mortgage payment low and avoid extra fees, such as private mortgage insurance (PMI). But if you can’t quite get there, you can likely still buy a house, as some types of home mortgages require much lower down payments than the traditional 20%.

    Get Preapproved for the Right Loan for You

    Now that you have some idea of how much you can afford to pay for your mortgage after reading this home buying guide, it’s time to get it in writing. This means going through the preapproval process with a lender, which requires you to provide your financial documents—such as pay stubs, W-2 statements, and bank account statements—in order to find out how much you qualify for. Once the lender verifies your financial information, you will get a preapproval letter that states the amount you can borrow for your mortgage.

    While a preapproval letter isn’t required during your home search, it is highly recommended, because sellers tend to take buyers more seriously when they already have preapproval. This means you could have the upper hand in the buying process, which you’ll need when there are multiple offers on a house you really want!

    Plus, it’s helpful to know your price range before you start looking for houses. You don’t want to fall in love with a house that is above an amount you can afford, as this sets you up for disappointment. Instead, take the time upfront to get preapproved from your lender of choice, and then go into the home search with confidence, knowing you’re only looking at homes you can comfortably afford.

    While you’re talking to your lender about your budget, you can ask which mortgage loans may be right for you. There are several to choose from—including conventional, USDA, VA, and FHA—and each one has its own requirements and benefits. The loan you get often determines the amount of your down payment and the minimum credit score you can have to qualify, so understanding each loan is important before you buy.

    Start Shopping for Your New Home

    Once you know how much you can borrow from the bank, it’s time to start looking at houses. You should begin this process by finding a real estate agent who is familiar with the area you want to live in, and who will listen to you as you describe what kind of home you want. Your real estate agent will need to know the following details to help you start the home buying process:

    • Do you want to buy a new build or resale home?
    • Do you want a single-family home, or are you open to condos and townhomes?
    • What cities are you looking in?
    • Do you want a single-story or a two-story home?
    • How many bedrooms and bathrooms do you want?
    • What kind of square footage do you need?
    • Are there any special features you want the home to have, or any deal breakers that you don’t want—such as a basement, pool, fireplace, etc.?

    After you answer these questions for your real estate agent, along with any other questions he or she has, you should start getting lists of houses that meet your criteria. Once you tell your agent which houses you want to see in person, he or she will schedule tours for you. Walking through the houses you’ve seen on the listings will help you narrow down your options, as you’ll likely realize there are some features you don’t like as much as you thought you would, and others that you decide you just can’t live without.

    As you start to zero in on your dream home and get closer to making an offer, be sure to research a few facts you might not have thought of. For example, find out how the local schools rank. Even if you don’t have children right now, good school districts can affect home value, so a home like this will be easier for you to sell in the future.

    While you’re researching local schools, consider the crime statistics of the area. You should also take note of how close important amenities are, such as grocery stores, gas stations, schools, and healthcare offices. Your real estate agent will help you conduct this research, as well, letting you know any other important information you should know about the area before you make an offer.

    Avoid First-Time Homebuyer Mistakes

    Not hiring a real estate agent to be your ultimate home buying guide is one mistake you don’t want to make, so make sure you choose one before you even begin searching for a home. Once you do that, you should be able to reduce your odds of making other common first-time homebuyer mistakes. However, sometimes buyers still make choices they eventually regret, causing them to spend more than they expected or not end up with the house they want.

    The first mistake we’ll discuss in this home buying guide is not budgeting enough money for the home buying process. Maybe you know how much you can spend on your mortgage, thanks to your preapproval letter, and perhaps you already have a down payment saved up. But the loan itself is not the only expense to consider.

    You will also have closing costs, which are usually between 2% and 5% of the loan amount. In addition, you will have to factor in property taxes, homeowner’s insurance, a home inspection, and more. You will know the exact amount you can expect to pay shortly before closing day, but you can be prepared long before that by setting aside several thousand dollars in an account as you start searching for a home to buy.

    Similarly, many new homeowners think they’re done spending money once they buy the house. But the reality is that it’s often just the start! You’re going to have some move-in expenses to budget for after closing day. For example, if you buy a new build, you’ll need to budget for window coverings, ceiling fans, and paint. Even if you buy a resale home, you will probably want to buy some new décor, rugs, appliances, and new fixtures as you move in and make the house your home.

    Another mistake to avoid is applying for new credit right before or during the home buying process. This is not the time to buy a new car, take out a personal loan, or open a new credit card. Wait until after closing day to do any of this. Otherwise, the closing process will be delayed since your debt-to-income ratio—as well as your credit score—will change. This might cause your lender to change your interest rate or increase your loan fees, so resist the temptation to open that furniture store credit card until after you have your keys in your hand!

    If you want to avoid making these and other common first-time homebuyer mistakes, it’s time to hire an experienced real estate agent who will guide you through the process. Feel free to check out our home buying guide, and then contact us to start searching for your dream home today!

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