Today’s average Millennial with aspirations of owning a home would do well not to give up. We’re talking about 25 to 38 year-olds who are first-time home shoppers and feel priced-out of the current market.
- 1) Millennials can use 2021 as a launchpad for building wealth with a “starter home.” There’s a bigger, better home in your future, but maybe it’s not attainable or affordable at this moment. Starter homes are more affordable and can be leveraged as a longer-time financial asset. Also, a first home could be in reach for many Millennials in 2021 as mortgage rates are predicted to likely remain at or near historic lows, according to Fannie Mae and Freddie Mac.
- 2) The argument surrounding renting a house versus owning a home is still very much in play for Millennials today. The age-old question regarding what you pay in rent versus what you could pay on a monthly mortgage is as relevant as ever, especially when the U.S. median monthly rent ($1,850) could get many types of buyers into a $326,000 house, townhome, or condominium (includes total/combined cost of monthly mortgage principle payment, interest, taxes, and insurance).
- 3) Millennial homebuyers should take a good look in the mirror — there are many in the market just like them. Do you realize who your competition is? That’s half the battle. Almost 40 percent of home purchases in 2020 were made by Millennials, with the potential for 15 million purchases attributed to this demographic during the next 10 years (according to the National Association of Realtors).
- 4) “Gift down payments” are getting more popular with Millennials. Recently, 30 percent of U.S. homebuyers in the 22-to-29 age range (and 20 percent in the 30-to-39 year-old cohort) said the most difficult step in purchasing a home was saving enough money for the down payment, according to the National Association of Realtors. That’s where “gifting” comes in handy. It doesn’t hurt to ask a family member if he or she feels comfortable letting go of gift money or inheritance money earlier rather than later to contribute to your down payment. Find out if gift funds are allowed for the type of mortgage you are seeking before moving forward.
- 5) Millennials can prepare for homeownership by taking some very important early steps. Get pre-approved for a mortgage or “pre-qualified” at the very least (can take as little as 10 – 15 minutes). Get serious about how much mortgage you can afford as you focus on your financial performance and financial health. Go through various scenarios on how much down payment money you’ll have, what mortgage rate you might qualify for, and what your terms of financing will be.
- 6) Millennial home-buying power is bigger in 2021 versus last year — about 7.4 percent bigger. This equates to a $24,600 to $56,700 bump higher in your mortgage depending on where you purchase, as well as a monthly payment that’s only $50 to $200 higher on average. That’s because the U.S. government’s mortgage regulator raised its “conforming loan limits” (the amount you’re allowed to borrow from a lender) from approximately $331,000 to $356,000 for FHA mortgages in lower-cost neighborhoods (and a higher amount for medium and high-cost neighborhoods).
- 7) Maneuvering through a “seller’s market” is the key to making it through 2021 for Millennials. Learn how to decipher between homes that are winners, losers, or “potentials.” Offer sellers their list price if you absolutely love the house, and even bid-up when appropriate (but try not to overpay if it really doesn’t make sense). Remember that sellers can also be motivated by ambitious “buyer concessions” during the escrow process, limited “walk away contingencies,” an above-average earnest money deposit, short-close escrows, and an emotional connection.
- 8) The debate over buying a condominium/townhome versus traditional detached home is as pertinent today for Millennials as it ever has been. Most condo/townhomes cost significantly less than a traditional house, have entertainment and leisure opportunities close by, and you won’t have to take care of shared green space. However, the value of a detached home will usually appreciate faster. Also, a condo/townhome is oftentimes less “sellable” than a traditional home during certain periods. Traditional homes don’t come with HOA conveniences and amenities, but they also don’t incur HOA costs as well (or they do but it can be cheaper by comparison). This list goes on, but these are some of the more notable differences.
- 9) The same work-from-home environment in 2020 for Millennials and others will be popular in 2021 due to the COVID-19 pandemic. The high value put on home office space isn’t going away. Whether it’s a full bedroom, a real office, or a corner space anywhere in the home, many buyers and sellers are pricing-in this newfound work lifestyle appropriately.
- 10) Millennials doing all the right things to raise their credit score and boost their DTI ratio will be ahead of the pack. You can increase your chances of locking-in a competitive mortgage rate in the future by upping your credit score and debt-to-income ratio (DTI) right now. Your FICO score (credit score) is calculated by the three main credit agencies using your payment history (35 percent), debt amounts owed (30 percent), credit history length (15 percent), new credit accounts (10 percent), and mixture of credit (10 percent). You can improve it by not arbitrarily opening or closing credit accounts, as well as remaining consistent on monthly payment minimums (or paying more than the minimum if you can). Your DTI is your total monthly debt payments on all loans/credit divided by gross monthly income, before taxes. Usually your total monthly debt should be no more than 43 percent of your monthly income before taxes. You can improve your DTI in the short run by paying down debt, or by increasing your income over the long term, or both.
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