Along the Wasatch front, rent is astronomically high while interest rates are still historically low; buying a home seems like a no-brainer. Yet Millennials have been slow to take on home ownership. Why the hesitation?
There are several factors: A recession which brought with it high unemployment resulted in a massive number of foreclosures that attracted real estate investors... in droves. With more rentals available and fewer homes for sale, demand for rental properties increased and with it, skyrocketing rents. In addition, New college graduates looking for higher-paying, career-oriented jobs were sidelined by high unemployment and unprecedented student loan debt limited access to credit and reduced borrowing limits.
Add it all up and Millennials are at a serious disadvantage. However, there are some fundamental tactics to help navigate the current real estate market and succeed in finding a home.
DO YOUR HOMEWORK
There is vital information you should know, but probably don’t, about buying a home. Just because you don’t know, doesn’t mean you can’t know.
Check your credit–This is important! Ideally, you should have ample credit available and only a third of it used. Repairing damaged credit should begin at least 6 months before starting your home search.
Evaluate Assets and Liabilities–Track your income and spending for a couple of months. Compare your earningpower and cost of living. Are you due a raise or can you live more economically?
Qualify yourself–A lender can tell you how much borrowing power you have, but only you know how much you can comfortably spend. Which brings us to...
Unexpected fees–Don’t forget to prepare for these fees: closing costs, property tax, HOA fees, life insurance, mortgage insurance, home insurance, utilities, maintenance, etc.
Figure out your down payment–Once you know how much you can borrow, unexpected costs, and your spending limit, you can figure out a down payment that will keep your monthly payment “comfortable”.
Organize documents–Your lender will need 2 most recent pay stubs, the previous 2 years’ W-2s, tax returns and the past 2 months of bank statements. Knowing what you need and where to find it will save you time and effort.
CONSIDER YOUR OPTIONS
There is dramatically low inventory of starter homes and prices are rising. Many homes are receiving multiple offers which creates challenges for first-time buyers. Increase your chances of finding a suitable property by considering some alternatives.
Go smaller–A smaller home, a smaller lot size or a lower cost neighborhood can reduce your costs.
Take on a project–Homes in need of updating, cosmetic improvement or a manageable degree of repairs are typically cheaper and in less demand.
Share the cost–A duplex or a home with an apartment will allow you to cover your mortgage by renting out one of the living spaces while living in the other. Save money while building equity and when you are ready to move up you can either rent or sell the property and apply the profit to your new home.
MORE TO CONSIDER
Interest rates are at historic lows, and first-time buyer programs, (featuring low or no down payments) are currently plentiful in the industry. With home values rising faster than salaries and comps, a lower home appraisal can be a bargaining chip to reduce the cost of your new home, even in this competitive market.