By Stephen Fournier – KeyBank Central New York Market President
Millennials are in an interesting position. According to Forbes, they’re making less than their parents did at the same age, adjusting for inflation, but they’re the largest demographic of homebuyers. While more than one-third are relying on gifts or loans from relatives, there are other ways of saving for a down payment.
Conventional wisdom says it’s best to make a 20 percent down payment when you buy your home. While this can help you lock in better interest rates and lower your monthly payment, you need to consider your individual financial situation and needs.
Go Under Budget
Home prices vary wildly depending on where you live, but you can expect to pay $150,000 to $250,000 on a starter home, typically a one- or two-bedroom. However, because millennials often rent longer, when they do purchase a home, they are opting to forgo the starter in favor of homes that cost $300,000 and above, according to CNBC. However, just because you can stretch your budget doesn’t mean you should.
Even if you’re preapproved for a specific loan amount, you may find that a lower home price gives you breathing room month to month. For long-term homeownership success, consider not only your down payment, but your monthly payments, property taxes, homeowners insurance, and closing costs — which can amount to 2–5 percent of the purchase price of your home. Smaller down payments may require you to get private mortgage insurance (PMI), which would increase your total monthly mortgage payments.
Going under budget gives you flexibility for home repairs or other financial emergencies. Many experts recommend saving between 1 and 3 percent of your home’s value each year for routine maintenance.
Time It Right
The homebuying process can take time— if possible, begin to prepare months in advance from when you want to move in. If you know you’re going to apply for a mortgage within the next few months, forgo opening new lines of credit, whether via a credit card or loan. This can negatively impact your credit score, which can increase interest rates and, ultimately, how much you’ll need to spend.
If you’re renting a house or apartment, try to negotiate a month-to-month lease or find an apartment that allows for a shorter lease term. That way, when the time comes to pull the trigger on buying a home, you can do so without the stress of rent and mortgage payments. Some millennials even opt to stay in their parents’ houses to save on rent.
Generate Additional Income
Anything worthwhile doesn’t come without hard work. As such, many millennials with their heart set on owning a home are taking on additional part-time jobs or forgoing vacations to save up for their dream home. However, there’s one income source you want to avoid touching: retirement funds. If you’re going to tap into this money, carefully consider the risks.
Research Mortgage Options
There’s no one-size-fits-all mortgage and your income, location, and more can dictate your options. Talk to a professional mortgage loan officer, who can explain the home financing process and lay out the loan options that make the most sense for your situation.
Depending on where you’re buying a home, your state may offer special programs for first-time homebuyers, or you may qualify for a Federal Housing Administration mortgage based on your income. Other options, like combination mortgages and VA mortgages, can eliminate the need for PMI. However, in the case of combination mortgages, you’ll need a bigger down payment and VA mortgages are available only to veterans, service members, and eligible surviving spouses.
Before diving into the exciting journey to homeownership, use a mortgage calculator to see how much house fits your lifestyle and then consider any other expenses and financial buffers you may need now and in the future. Also, talk with your banker about developing a savings plan so you’re ready to move when the home of your dreams hits the market.
About the author: Stephen Fournier is president of KeyBank’s Central New York Market. He may be reached at either 315-470-5096 or [email protected].
Common Myths About Selling a Home
Whether you’re upsizing, downsizing, or relocating for a job, selling your current home can be one of the most daunting aspects of moving. You’ll probably receive a lot of advice from friends or family members who have sold a home in the past, but try to remember that everyone’s experience is different. Here are some common myths you may hear about when selling a home.
You Can’t Sell Your Home in the Winter
You can, although seasonal factors do affect the real estate market. Typically, there are less active buyers in the off-season, but those who are looking are usually serious — for example, they’re moving for a job and need to act quickly. Typically, the number of homes on the market decreases in the winter, meaning less competition for sellers so there may even be an advantage to selling at this time of year.
You Need to Renovate Before Putting Your House on the Market
If you’re looking to get the best possible price for your home, you may be tempted to consider undergoing large renovations, hoping the investment will pay off. Modern kitchens and baths are a selling point, but you don’t always need to undergo a large-scale remodel to improve your home’s marketability.
According to the most recent Home Buyer and Seller Generational Trends Report, heating and cooling costs were the most important environmental factor for recent homebuyers. If you’ve installed a new heater or air conditioner, be sure to mention it in your listing.Price High
Pricing a home is dependent on many factors. Sellers may assume that buyers will start negotiations with a bid lower than the asking price and therefore list their home for a higher amount. However, don’t want to price yourself out of a potential buyer’s budget. Better advice for sellers is to price realistically. Talk to your real estate agent and look at recent sales in your neighborhood for guidance and seek the advice of a real estate agent.
