Millennials, Are You Ready?
Updated: Jan 29, 2022
Millennials are now the largest generation in the U.S. They are between the ages of 25 and 40 in 2021 (born between 1981 and 1997) and number approximately 72.1 million. The millennial population has surpassed the number of Baby Boomers (ages 57 to 75 totaling 71.6 million) and Generation X (ages 41 to 56 totaling 65.2 million). As Generation X and the Baby Boomers are starting to retire and downsize, the Millennials are at the stage in life when they are preparing to purchase their first home.
How do you prepare to purchase your first home? You need to be prepared financially and also learn about the real estate acquisition process. These tips may help you to get ready to purchase a new home.
First, get your finances ready. When you request to see a home you are interested in buying, most real estate agents and sellers will ask to see your financing approval letter. A financing approval letter shows that you have the ability to obtain a loan to purchase the property. How can you get a financing approval letter? You can get these letters from banks or mortgage agents. Some banks even offer online approval letters. Before they issue the letter, the bank or mortgage company will evaluate your financial ability to purchase a home. In most cases, you will need a credit score of 700 or more and a stable source of income to make the loan payments. Your debt-to-income ratio should be less than 45%. Moreover, you need a 20% down payment to qualify for a conventional loan to finance your purchase. If you have a down payment greater than 20%, the bank may be more flexible on the required credit score. In some circumstances, mortgage companies offer loans with smaller down payment requirements. You will need research whether you qualify for one of these programs to assist you in the purchase of your first home.
Second, be patient. If you are planning to get married around the same time as you purchase a new home, it may put a lot of pressure on you if you try to do both things at the same time. You may need to take time to consider planning your wedding while just renting for a while. If you are on a deadline to move out of a rental property, you may want to set up a month-to-month lease instead of rushing into both the wedding and the purchase of a new home. A wedding is a happy time in your life, and you don’t want the additional pressure of purchasing a home to ruin your happy moments.
Third, clarify your needs. Before you rush into the purchase process, sit down with your spouse or future life partner; draw a clear picture and make a priority list of what you really want in your new home. Is a convenient location close to work important or is the quality of the schools more important if you have children or are planning to have children soon? Is the size of the home or specific features, like the type of kitchen, a large kitchen island, or master bedroom size, or a decent size home office, important to you? Do you want a nice patio, large yard, or pool? Make sure you discuss the priority list with your future life partner and have a clear picture of what you really want in your new home. I worked with this couple who wanted to buy a new home. One was planning to work at home, so a home office was very important to him. However, they looked for homes in a location that would require his future wife to drive an hour to go to work. In this situation, if you can work at home, do you really want your wife to drive an hour to go to work every day? These issues should be discussed thoroughly in advance so that the house location and features fit the needs of the entire household.
Fourth, what are your main concerns? When you look at a new home, you may consider the location and your driving distance to work or schools. If you are planning to have children immediately, you may also be concerned about the schools for your children. The parking situation, property taxes, insurance, HOA payments, etc… these are all future payment obligations in addition to the monthly mortgage. If you are purchasing an old property instead of new construction, you may also need to budget for future repair costs, such as replacing the roof, air conditioner, or major appliances. If you cannot keep up your property maintenance, it is better to rent for a while than to buy.
Once you sort out the above issues and have your pre-approval letter ready, you are ready to work with your real estate agent. Tell your agent the type of home you are seeking and all the items on your priority list. In a seller’s market, the inventory is tight; you may have to look at many homes before you find one that meets all of your requirements. Don’t worry, just keep your eyes open for a good deal. As soon as your dream home pops up in the market, you will be fully prepared to grab it immediately.