Everything Millennials Need To Know About Buying Their First Home
Adulting isn't always easy, but it can be very exciting!
Buying a home is probably the biggest example.
Buying your first home is one of the biggest decisions Millennials will make in their lives. It can be both very exciting and very stressful.
If you are in the process of buying a new home, you should read these guidelines to get started.
Don't Think Renting Is Better Long-Term
If you read the headlines from many cynical financial bloggers out there, you'd think that renting a home was the dumbest thing you could possibly do.
Even reputable sites like Entrepreneur have started mocking the idea.
This sentiment is strikingly different from the advice they gave 30 years ago. What has changed since then?
Their views clearly changed around the time of the Great Recession. After the fallout from the housing market collapse, many people lost their homes.
This led many people to believe that buying a house was actually a bad decision, at least in a bad economic climate.
Scaremongering feedback like this doesn't add anything useful to the discussion.
It's true that buying a home is risky – it always has been. However, renting is also very risky. You are throwing money away during your working years and won't have a place to call your own by the time you retire.
You shouldn't avoid buying a house out of fear. You just need to make sure that you are smart about it. It should be a priority if you meet these criteria:
- You have a steady job (preferably one you have been with for at least a year without fear of future layoffs).
- You are in a field where you can easily get a new job if anything goes south.
- Your debt to income ratio wouldn't be much higher than 30 percent after taking the mortgage (although lenders may give loans even if it is as high as 43 percent).
- You have backup options to pay your mortgage off more easily (such as taking on roommates or sharing the costs with a spouse).
- You plan on staying in the same area for at least a couple of years.
- You don't mind handling repairs on your own.
If you meet these criteria, you'll almost certainly be better off in the long-run. In fact, you may be better off the day you sign the mortgage.
Keep in mind that in many areas (such as many counties in Northern California), you will actually pay less on your mortgage in the first year than renting a one-bedroom apartment.
You will actually pay less on your mortgage in the first year than renting a one-bedroom apartment.
Even if the mortgage is slightly higher, you can at least minimize your burden by taking roommates.
Choosing The Right Home
Many young adults don't realize how much their life may change in the next couple of years.
You may currently be planning on having a quaint house where you can hold cocktail parties. You may be in for an unpleasant shock if you and your significant other begin having discussions about children and realize your home is too small.
Buying a home is almost always a smart financial decision, but you need to make sure it's one you'll be happy with, too.
You may end up being absolutely miserable if you buy the wrong house, so ask yourself these questions first:
- Do you plan on having a larger family any time in the near future? You may seriously regret buying a small house.
- How long do you want your home to last? The longevity of a home has a lot to do with the materials you use inside for countertops, walls and flooring. If you plan on handing it down to your children and getting years of use, you may want to use engineered hardwood instead of solid, granite or quartz countertops.
- Do you feel safe in the area you're looking at?
- Do you plan on holding social gatherings at your home?
- How long will the commute be from your place of employment?
- How easily can you make improvements to your new home? It isn't always easy or cheap to do improvements or repairs, but as Millennials that grew up in the age of eCommerce and the internet, you can now do a lot of DIY repairs and remodels yourselves. Things like replacing the flooring in your living room or redoing the cabinets in your kitchen don't have to break the bank.
Buying a home is almost always a smart financial decision.
You can also be miserable if you buy a larger house than you can afford, so don't make that mistake, either.
Finding the right home is going to take some time and thought. Make sure you reach your decision carefully.