Currently, the majority of first-time homebuyers are Millennials. However, while Millennials make up more of first-time buyers, their actual ability to secure a home is lower than that of past generations. This is due to various shifts in the housing market and the national economic situation from the 2008 recession; however, it doesn’t mean Millennials have to give up on the idea of home ownership. There are a few strategies that anyone can use to make obtaining a home more affordable, but the following tips should have more appeal to Millennial first-time buyers.
Pay Off or Lower Outstanding Debts
If you are a Millennial, right now you are probably in your 20s. This means you are more likely to currently have student loans, car payments, credit card bills, or other forms of debt. Take a look at your monthly payments and make sure you aren’t falling behind on any; if you can manage to pay off smaller debts, all the better. Your current and past debts, as well as your repayment history, are taken into account when you apply for a home loan. Being able to show that you can stay on top of your payments or are not under a large volume of debt will help improve the bank or credit union’s confidence in you and you can secure a lower interest rate as a result.
Understand Your Finances
Before any major purchase, house or otherwise, it is essential to have a proper understanding of your financial situation. Owning a home comes with several financial obligations like bills, mortgage payments, maintenance costs, and so on. You may have no trouble making rent payments on your current residence, but the additional expenses that come with home ownership could end up being more than you can handle at this time. You will also want to take a look at your credit report to make sure there are no outstanding issues that could surprise you when you apply for a mortgage.
Ideally, anyone, first-time buyer or not, will start saving when they begin to consider buying a home. Between down payments, closing costs, home inspections, and any number of possible surprise expenses, there is incredible value in having a pool of emergency funds to draw on. While there is no hard-and-fast rule for how big such a fund should be, you should at least assume that you will need to place a down payment of 20% and may need to pay 2%-5% of the purchase price in closing costs.
Getting pre-approval for a home loan has several advantages. First, some realtors or sellers won’t work with you unless you can offer proof that you’re eligible for a mortgage, so pre-approval can expand your options. Second, pre-approval gives you a concrete price range to work within when you go house hunting. Aiming for homes near the middle of your pre-approval range helps minimize risk to yourself and accounts for how the actual loan amount can end up differing from the pre-approved quote.
Target Your Search
Finalizing your search location helps focus your options and also makes you decide on what you actually want in an area. The maxim in real estate is “location, location, location” for a reason after all. Keep in mind factors like proximity to work, friends, major highways, property taxes, and other elements that could influence your quality of life or regular payments. Being in an area with higher property taxes might be worth it, for instance, if the cost ends up being less than buying the gas you’d need to drive to work every day from some other, further location.
Get a Home Inspection
Home inspections are vital tools for any first-time homebuyer since they help improve confidence in the process and can prevent your first real estate experience from going sour. Inspections can uncover issues with heating systems, code violations, and other infrastructure matters that wouldn’t be apparent during a tour but can cause problems when trying to live in the building. Some banks or credit unions actually require a home inspection before they will provide a mortgage, so it might end up being mandatory anyway. When looking at a home inspection report, pay particular attention to anything involving the roof, plumbing, foundation, and heating/cooling systems. Problems in these areas can incur significant costs shortly after moving in and in the worst case could cripple your wallet.
LUSO Federal Credit Union Is a Trusted Source for First-Time Homebuyers
LUSO Federal Credit Union is a not-for-profit, member-owned financial cooperative dedicated to providing members with quality financial services and products. We at LUSO pride ourselves on serving the financial needs of our members and provide home loan and mortgage options at reasonable interest rates in Ludlow, Springfield, Chicopee, Westfield, and Hampden County, Massachusetts.
Feel free to contact our LENDING HOTLINE at 888-848-5876 for more information.