Since launching the site in 2013 my goal has been to consistently serve you, the readers. I’ve since noticed a lapse, particularly when it comes to home-ownership. Let’s be real, I live in New York City and we have a few home-ownership challenges that I do not care to navigate at the time. I’m also still deciding if home-ownership is right for me and my fiancé at this time.
However I know that many of you are considering home ownership at this juncture in your lives. For that reason I’ve connected with the great folks at Zillow.com to occasionally guest post well-researched, useful articles related to home-ownership. Enjoy!
by Jennifer Riner for Zillow.com
Zillow predicts financially-minded millennials will be this year’s largest home buying demographic, overtaking the top spot previously occupied by Generation X. And since a home is likely the largest purchase of one’s lifetime, it’s vital to prepare accordingly.
Implement the following home buying best practices to eradicate costly or unforeseen hurdles.
1.Offer a sizable down payment
Down payments consist of an upfront lump sum that buyers must provide before closing. Financial experts typically recommend financing at least 20 percent of a home’s purchase price to avoid private mortgage insurance (PMI) on a conventional mortgage loan. PMI is designed to protect lenders in case borrowers default on their mortgage payments.
Homeowners who lack 20 percent in savings will pay PMI along with their regular monthly mortgage payments until their loan-to-value ratios are at least 80 percent. PMI interest rates hover around $30 to $70 per month per every $100,000 borrowed, depending on credit history and the amount the borrower is able to put down on the loan.
For example, assume you’re searching for a home in Dallas where the median list price on for-sale homes is $250,000. If you can’t accumulate $50,000 and wish to purchase the home with a smaller down payment, expect to owe around $125 on top of your regular mortgage bill each month, which might be around $1,230 per month assuming you qualify for a 3.64 percent interest rate on a 30-year fixed mortgage.
If you don’t have the standard 20% down, use a mortgage calculator to determine your potential PMI cost per month. PMI costs do not contribute toward the principal on a home, they are strictly interest incidentals.
2. Research your market
Studies show the best housing markets for first-time buyers are those with strong income growth among residents in their 20s and early 30s, with an increasing number of affordable homes on the market.
Buyers in Pittsburgh, Chicago and Atlanta offer cost-effective opportunities for first-time homebuyers this year. Due to expensive rentals and affordable loans rates in almost half the U.S., buying appears to be more affordable than renting after an average of two years.
2015’s Best Homebuyer Markets for Millennials
- Pittsburgh, PA
- Chicago, IL
- Las Vegas, NV
- Atlanta, GA
Make sure you check out the local median sale price versus the Zillow Home Value Index, and compare these numbers to national rates.
3. Ask an agent
Although online listings simplify the house hunting process, they don’t replace the need for knowledgeable and experienced real estate agents. Agents understand their target markets and the potential return on investment (ROI) after building equity in your home.
While you may have already set your budget, home type and interior design preferences, agents facilitate negotiations, provide access to financing resources and define housing trends that discourage inexperienced buyers from investing in unfavorable properties.
4.Think it through
Is this the best time to buy for you?
Home ownership isn’t right for everyone, no matter how orderly their finances are or the current real estate market. After you’ve saved 20 percent and calculated potential mortgage costs, you need to think of additional expenses such as closing costs, which range from 3 to 5 percent of a home’s purchase price.
Closing costs consist of commissions, fees associated with general loans, titles, government records and settlements. Individuals’ closing costs vary, since sometimes sellers agree to cover these incidentals – especially if they receive their full asking price on their homes. Other long-term costs to take into consideration are like lawn care, appliance replacement and HVAC system maintenance. These extra fees add up quickly, and many young buyers forget to factor them into their monthly budgets, focusing primarily on mortgages alone.
The truth is, sometimes it’s just not the right time to settle down and buy a home. A financially-minded young professional with a 20 percent down payment available in savings may prefer to travel the world. A 30-year-fixed mortgage is a long-term commitment, and unless you can pay off your principal quicker than anticipated or sell for profit early on, you’ll owe your lender for a while. Renting is expensive and may not provide long-term ROI, but offers an unparalleled amount of freedom in terms of housing options.