By Courtney Gauthier – KeyBank Mortgage Loan Officer
Conventional wisdom says it’s best to make a 20 percent down payment when you buy your home. While this can help you in several ways, including locking in better interest rates and lower your monthly payment, you should consider your individual financial situation and what’s best for you. Here are some tactics that may help you as you start your homebuying journey.
Go Under Budget
Home prices vary wildly depending on where you live and according to Business Insider, the median sale price of the typical one- or two-bedroom starter home is $243,000. Despite this, according to CNBC, many millennials are opting to forgo the starter in favor of purchasing homes that cost $300,000 and above. 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 and financial success, consider not only your down payment, but other expenses such as 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 having rent and mortgage payments at the same time. 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.
- Many organizations or lenders offer grants or other special programs to assist eligible customers with buying a home. For example, KeyBank Neighbors First Credit is designed to help homebuyers in qualified areas across Key’s footprint and in Florida by providing up to $5,000 in credit to be used for closing costs and to pre-paid fees that may come with financing a new home.
For more information about KeyBank’s mortgage products or its Neighbors First Credit, clients can visit a KeyBank branch.
About the author: Courtney Gauthier is a Mortgage Loan Officer with KeyBank in Central New York. NMLS #1565212. She may be reached at 315-470-5182 or [email protected]. KeyBank is Member FDIC and an Equal Housing Lender. NMLS #399797 All loans are subject to credit and collateral approval. Not all loans or products are available in all states. Mortgage and Home Equity Lending products offered by KeyBank are not FDIC insured or guaranteed. The KeyBank Neighbors First Credit is available on primary residence first lien purchases only. Property must be located in an eligible community in KeyBank’s retail footprint or Florida. Eligible communities are determined by KeyBank and subject to change without notice. Additional terms or restrictions may apply. Ask us for details. © 2024. KeyCorp CFMA #240418-2557928
Top Factors That Influence a Home’s Appreciation
While there are no guarantees that a home’s value will increase, the following are pretty good indicators:
- It’s a Smaller Home: Small homes have been appreciating at a greater rate than larger ones in recent years. Realtor reported that Millennials are seeking more affordable housing like mobile homes. Consider, too, that if the economy takes a downturn, people will be more inclined to buy smaller properties.
- It’s in an Up-And-Coming Neighborhood: Being in the heart of a rapidly growing city could work in your house’s favor, even if the house itself isn’t new or as big as you may have hoped. Small and older houses can be desirable if they’re in a trendy or highly sought-after area. Research the local economies to gauge whether the house will likely appreciate based on location alone. Proximity to great schools, conveniences, and cultural amenities can go a long way toward making your property more attractive to potential buyers.
- It Has an Appealing Exterior: Curb appeal is a significant factor in determining whether a home will sell, especially for a good price. What does your house look like from the outside? Does it have distracting or out-of-place features? Or is it well-maintained and does it fit in with the rest of the neighborhood?
- The Property Itself Has Value: The land on which your house stands could be just as valuable as the home itself, according to Trulia. If your property lies along a waterfront or another scenic area, chances are its value will go up, or at least remain competitive if there’s a downturn.
