It’s no secret that we’re a special kind of people- Millennials.
We don’t want the same things our parents did, and that doesn’t always sit well with them. No white picket fence; our generation does things a little differently.
So when we finally decide to buy our first homes, it’s going to take a different approach towards educating us on how to do so. We’re very interested in buying homes, so help us to remove the stigma that we’re a “generation of renters.”
First and foremost, our student debt and the number of financial hurdles are greater than those of Gen Xers. It does not help that salaries are smaller, too. So what we need is advice on how to approach these great financial decisions that wouldn’t pertain to baby boomers and other predecessors.
Something a little more personalized would really do the trick… In the meantime, though, keep these things in mind when in the market to buy your very first home.
1)It’s the economy, stupid.
Know what’s going on in the economy. The key to being prepared to own a home is to prevent yourself from being caught off-guard.
To begin, the Federal Reserve’s target short-term rates have been set at zero percent since 2008. This plays an important role in the mortgage rate that homeowners receive. But the days of low interest rates may be coming to an end.
The Federal Reserve Board began considering an increase in rates in September, but did not go through with the idea. The next meeting was to take place in the month of December, and we’ve yet to see the result of revisiting this idea.
What this rate increase means for us is a higher monthly payment, which could affect our ability to qualify for a loan…
“As much as 7 percent of mortgage applicants would have failed to get approval as a result of higher debt-to-income ratios caused by higher rates,” says Jonathan Smoke, Chief Economist of realtor.com, based on an analysis of loans approved in the first half of 2015.
However, now, this rate increase won’t catch you off guard, because we’re one step in the right direction toward being prepared!
2) Tackle those student loans ASAP
Student loan debt is daunting. And before you can comfortably begin to save for a down payment on your first home, you’re going to want to maintain your monthly payments. Also, you’re going to have to take time to decide whether you’re financially stable enough to maintain both a college loan payment and a mortgage payment.
“There are lots of ways to work toward paying off student loans while simultaneously saving for a home,” says Laura Holthaus, an investment adviser in St. Joseph, MO.
Goals are important. Start with setting goals. Do your best to estimate the down payment you’d be making, determine a timeline for your savings account to grow, and divide the amount needed by the time you’ve allotted yourself to save up.
The next step would be to find a balance between these newly set savings goals and your current student debt (if you have any.)
“Implement a graduated savings plan,” Holthaus says. “Pay more toward your student loan and less toward your home savings today. Then gradually adjust the rates over time so you’re paying less toward your student loan and more toward your home savings.”
3) Boost your credit
Millennials have an average credit score of 625- lower than both the nation average and the average for every other generation, according to a recent study by Experian.
Before you apply for a mortgage, if you allow yourself time, you can boost your credit score. Obviously, lower credit scores can cause someone that’s never applied for a loan before to be more hesitant for fear of rejection.
But according to Holthaus, all it takes is a little determination:
Paying your bills on time- every time.
Check your credit report regularly. (Mistakes can happen!)
Use your credit cards strategically. Put certain items on your card each month to maximize rewards, and then make sure to pay off the balance in full.
Don’t open a credit account you don’t need (even if you do get a discount on your first purchase).
4) Get that down payment ready
Down payments don’t just happen! Aim for 20 percent of the purchase price and you should be able to steer clear of private mortgage insurance. The minute you become sure that you want to buy, you should begin saving towards your down payment.
Rightfully so, the notion of compiling 20 percent of the price of a home by yourself can be nauseating. And although there is help, there are rules to receiving that help. If a parent wants to pay for part of your new purchase, you must be able to prove that the funds were a gift and not a loan that requires repayment. There are also some cases in which a lender expects you to have had the funding you plan to use in an account for a certain amount of time. So if you do hope to ask your parents for help, make sure you do it a while in advance before you actually plan to buy.
5) Ask for help!
How could you possibly know what help you’re entitled to if you never swallow your pride and ask?
It’s okay to be independent, but when you ask for help, you’ll wonder why you hadn’t done it sooner.
Begin by asking for help from your mortgage broker. They can help you to begin planning financially far down the road before it actually becomes time to make a purchase. And they’re happy to do so!
Another very important piece to the puzzle of life is a financial adviser. Financial Advisers create specific goals and methods to help you reach those goals. Your goals, and the easiest way to achieve those goals- it doesn’t get much better than that.
Go ahead, be selfish- in this instance. As a millennial, you have certain standards that not everyone can live up to- like your vinyl collection for example. But just as you are picky with the produce that you buy and the labels that you wear, you need to be picky about your financial adviser. Read reviews. Visit www.finra.org, the Financial Industry Regulatory Authority’s website, where you can see if the adviser has acquired any complaints from former clients, and ask for a referral list before you even begin working with an adviser.
Finally, once you get the right adviser, ask questions. Ask as many questions as you would like to ask, and make sure that you get your answers. If you want to be a homeowner, you’ll get there faster by knowing more.