Millennials. Generation X -The generation between 18 and 35; the young experts, flooding the workforce. They’ve cut back on KFC, taken up a job and borrowed money from mommy and daddy, in order to buy that phone which comes with a sky-high price or the car they wanted to show off. Now, this demographic has also inundated the real estate market as well. But, of any demographic, millennials have the weakest sense of financial literacy and reported very low levels of economic satisfaction, according to a study by the ‘Global financial Literacy Excellence center’.
Buying a home is a major purchase, and there are plenty of ways to trip up. But don’t worry—we’ve got a quick fix right here.
1) Don’t buy a house if you’re planning to move again soon
If you’re a renter, it can be frustrating to write that rent check every month and have no home equity to show for it at the end of the year. But if you aren’t certain that you’re going to stay put for a few years, it’s probably not the right time to buy—equity or no equity. Some people tend to buy a house knowing that they’re going to be relocating after a few years.
What to do: If you aren’t in an area with a strong rental market that would allow you to cover the mortgage on your home if you move elsewhere, then stick with a rental for now.
2) Not Getting Pre-Approved
Buying a home should never start with searching for listings online. If you’re serious about buying, start by meeting with a lender. Although that seems backwards to many first-time homebuyers (“Why would I talk to someone about getting money for a home I haven’t found yet?!”) it’s going to help you in the long run.
When you get pre-approved for a mortgage, it means you have met with a lender and showed them your credit report, debt, income, and assets in order to provide a picture of your finances. With that information, they will draft a pre-approval letter – something that tells you how much money you’re potentially qualified for, but isn’t a guarantee of money. Realtors look for a pre-approval letter when working with you because it shows you’ve done your homework and you know your price range.
What to do: Get pre-approved for a mortgage. Not only will this prove that you’re serious to your realtor and to home sellers, but it will also give you an idea of your upper limit. Remember that the lender is there to make you a loan, and the more money you borrow, the better it is for them.
3) Mixing up online calculations with realityPhew!!
Millennials will not know what true heartbreak feels like until they bid on their dream home, only to have the offer fall through in financing. Do not be fooled by putting all your trust in online calculators to tell you how much you can afford. These are merely a guide but do not account for things like your credit score, which can affect your mortgage rate.
What to do: Go to a bank and go to a lender. Find out what you will be approved for exactly and make sure to check your credit score.
4) Thinking the amount a bank will lend you is what you can afford
Up until now you’ve had a phone bill, an electricity bill and some student loans. When you buy a property you may wrongly assume that you’re only adding a single extra bill — the mortgage, to that list of monthly payments. The truth is there are many costs that lenders don’t factor in when calculating what you can comfortably afford.
What to do: You should not focus on how much you’re able to borrow, but rather on how much you should borrow. There is a big difference. Add up all your current living expenses, plus the extra expenses associated with home-ownership that you can think of, then tack on at least 5% to 10% of your monthly income for savings. Circle that number in red, because that’s what you really can afford.
5) Don’t skip the inspection
Even if the home looks like it’s in winning shape, it would be foolish to skip a thorough once-over by a professional. People tend to think that the inspection and the appraisal are the same thing, which is not the case! An expert should be there to spot the things you don’t know to look for, like if the chimney is in great shape or whether those little cracks in the foundation are a big deal. He’ll look for signs of water damage and check the insulation in the attic. If there are conditions that will need repair, you may be able to negotiate with the seller to drop the price. In other words, the inspection is worth every penny.
What to do: Get recommendations from your realtor or friends who’ve bought in the area, and have a professional inspection done before you close on the house.
There you have it, five errors you could currently combat as you purchase a home for the very first time. Use these tips to guarantee your home-buying encounter goes as efficiently as possible!