It’s just not your mom’s real estate market anymore! As the millennial generation gets older, many of the typical adult goals start lining up, demanding to be met. Finishing college, getting married, buying homes, and having children are just a few. But many young people are beginning to step away from these societal norms, changing the status quo and disregarding every so-called expectation that everyone demands. That isn’t a problem, however, the idea of buying homes and settling down is a complete mystery to this generation in particular.
It’s easy to see why. From the difficulties of finding a job to the ever-rising student debt, the idea of owning a home may feel impossible for the average millennial. With home prices skyrocketing left and right, the long-lasting fear that what happened to their parents during the 2008-2009 economic debacle will happen to them as well, and the growing realization that what we own does not define us, millennials are not too keen on purchasing a property. Whether or not this is something they desire, is homeownership even an option for millennials in the current climate? It doesn’t have to be a pipe dream, and it shouldn’t be impossible to purchase a property for those that want to become homeowners.
That’s why we’re here. While we can not help you determine what you want your life to be like or figure out if you want to become a homeowner and get out of that mediocre rental. However, with proper planning and the right mindset, many young people find opportunities to buy their first houses and begin lives for themselves.
Millennial’s tips for buying a home in this real estate market
Because they have a different way of life, other priorities and are more focused on improving themselves than on starting a family, millennials are, quite literally, shifting the real estate market. As the generation with the lowest homeownership rate of 48% (Gen X are at 69%, baby boomers at 78%, silent generation at 79%), millennials are postponing homeownership. When they do buy, they buy much smaller houses than other generations. Their financial struggles are real, but so is their need for independence which can not be attained in their parent’s homes or a shared rental. Adulting is hard, and so is buying a property, especially in the current climate, but here, we’ll talk about things that every millennial should do if they plan to purchase a home for themselves in the near future.
Many young people consider this to be a terrifying, adult concept, but it doesn’t have to be hard. Do you regularly pay insurance bills and student loans? What about the differences between your rent and a potential mortgage? It’s essential to budget your expenses correctly, so be sure to consider every possibility before jumping into the home buyer pool. With a bit of research and some time, you can know your own credit backwards and forwards. Take a good look at your finances, and address any issues early. The more you know about yourself, the better you can plan and negotiate.
The difference between the growth of housing prices and incomes does not help millennials to purchase a home. So what can this generation do to fix the problems our society created for them? The biggest struggle that they face is student loan debt. The simple way to fix this would be by paying them off early, but how can they do that on an income that doesn’t allow them to own a home? While increasing their loan payments might shorten the amount of time they need to repay the loan, how will they afford a downpayment? Their finances are also the key to their downpayment, so saving money needs to be a priority, and it should be done as early as possible.
As the down payment can be anywhere from 3.5 to 20% knowing what they can actually afford is incredibly important. Location matters, as well as size, drive housing prices. Many online services showcase neighborhoods in a city based on housing prices, so it’s easy to see which areas are more affordable. However, crime rates and other factors might influence the price tag on a house, so research is necessary if you want to find out the best city for millennial real estate investments.
Boost Credit Score
Credit is the general language of lenders and while the idea of owning money is scary, purchasing a property without it isn’t an option for most people. Now, millennials, especially those who know people who lost their homes during the housing crash, need to know that credit score was altered so that what happened back then is much less likely to happen now. During the housing boom, the expected credit score for buyers was 620. That value is set at 751 now. The housing crash happened because those with a credit score of 620 shouldn’t have been approved for the loan amount they requested. It was much too high an amount for their financial situation. Hence, the credit score was pushed up. This makes it harder for millennials to get loans approved but makes it safer for their finances as those that can not afford the monthly mortgage based on their incomes don’t get it. This also leads to millennials buying smaller homes as square footage matters in real estate.
Raising your credit score will increase your chances of mortgage approval. You can do this by paying bills on time as that proves reliability, stay away from lines of credit and get up close and personal with your credit report. Any irregularities on your credit report should be fixed right away and any account no longer used should be closed.
Dominate the Market
Buying a home is a huge commitment, so be sure that you’re well-versed before you walk into any purchases. Read articles online, listen to podcasts, talk to real estate agents, and download a few apps to help you with the process. Bookmark things to consider later, and try asking friends and family for advice. Many of your family members have probably experienced buying a home, and there’s no better person to ask than someone who has experienced it firsthand. Take advantage of anyone who will answer your questions, whether a distant relative or a real estate agent. Separate opinion from fact, and fact-check everything you hear. The more prepared you are, the easier the home buying process will be in the long run.
While we live in the age of information, and everything is available a few clicks or swipes away, the real estate industry isn’t the simplest to maneuver. Working with a real estate agent may seem pointless in this day and age, but why wouldn’t you use someone’s real estate expertise when purchasing a home. This generation isn’t prone to click “yes” on a pop-up advert that tells them they bought the latest iPhone for fear of scams, and millennials are less carefree with their finances than Gen X. So why would they not use a real estate agent when it comes to an incredibly serious financial investment? While real estate agents do get a commission for every closed transaction, you tell them what your price range is, and if they only show your properties above that, you can simply say “no”. Information is only one click away, but experience is not, and millennials need the expertise of a skilled real estate agent in the current market. Buying in a seller’s market can be a nightmare, and a real estate agent will be the one fighting your demons for you.
Timing is Everything
Don’t fall for the ‘renting is always cheaper’ myth. Long-term renting is a quicksand trap that too many young people get sucked into. Don’t assume you can’t buy. Many studies show the price of renting is rising versus the quickly declining interest rates. It’s becoming easier to buy, so keep your eyes peeled for opportunities to break the rent cycle.
That’s the good side of home purchasing right now. The bad side is the housing market appreciation. There aren’t many sought-after cities for millennials that aren’t experiencing housing price growth right now. This is why we state that timing is everything. With the current gentrification and revitalization trends sweeping the nation, it would be a good thing to think ahead of the herd and look at those areas that will experience one of these upgrading trends. Millennials can find affordable prices in up-and-coming neighborhoods, where home prices will appreciate and sky-rocket once the rejuvenation projects are completed. You might wind up with a diamond in the rough, but with a bit of polish, it will shine brighter than ever.
Buying a home doesn’t have to be a terrible experience, and it doesn’t have to be something you only dream about at night. Buying a home as a millennial may not be the easiest thing to do, but there are way worse experiences that this generation encountered, so take the leap and become a homeowner! If you’ve found a place where you, a spouse, or an existing family would like to settle down, consider house listings for the area, talk to a real estate agent, and begin planning for the future.