No Obligation and transparency 24/7. Instantly compare live rates and costs from our network of lenders across the country. Real-time accurate rates and closing costs for a variety of loan programs custom to your specific situation.
Homeownership is a major investment, and the financial decisions you make will have long-lasting effects on your future. However, there are a few things that young homebuyers frequently do not consider when embarking on the home buying process. Thus, in this article, we’ll go over this and more.
It is never too early to start planning for your financial future, including your next home purchase. Buying your first home, whether with a spouse, a significant other, or by yourself, is no small feat. Moreover, if you are young and new to the path to homeownership, you may feel a little intimidated by the overall purchasing process.
In fact, a recent survey shows some homebuyers ages 25 to 40 may be unsure about the process altogether and what they can afford. Thus, due to this uncertainty, many young homebuyers have given up on their search, or worse, they have decided that buying a house is not for them and have subsequently opted not to start their homeownership journey.
That said, if you are interested in buying but are not sure where to begin, here are three important truths that young homebuyers should know ahead of time.
As you are likely aware, there are some serious benefits to homeownership. However, there are also a few myths and misconceptions that can get new homebuyers in trouble. But the good news is that the three truths mentioned below can make a world of difference for first-time homebuyers:
Before you find your dream home, you should try to figure out where you are at financially. This means getting your finances in order to qualify for a mortgage or home loan, paying down debt, and, of course, checking your credit score/credit report—among other mortgage-related things (get pre-approved, compile pertinent documentation, etc.).
When you check your credit score, it is important to remember that mortgage interest rates tend to be higher with lower credit scores, which can dramatically affect the total costs associated with a new home purchase. You should also figure out what income your lifestyle requires and how much you can start saving up.
In general, saving for a down payment is sometimes viewed as one of the biggest obstacles for homebuyers, but that does not have to be the case. As Freddie Mac says, “The most damaging down payment myth—since it stops the homebuying process before it can start—is the belief that 20% is necessary.”
The truth is, according to a recent Home Buyers and Sellers Generational Trends Report from the National Association of Realtors (NAR), the median down payment was only 12%. Moreover, when we control for age – for buyers in the 22 to 30 age range – the national median down payment was only 6%.
Along those same lines, first-time home buyers often make many assumptions about their new house and their immediate financial future. These assumptions can influence what kind of home you buy and how big a financial burden it can eventually be. Yet, as a young homebuyer, it is your responsibility to be objective and learn the truth about investing in real estate.
So do yourself a favor and consider multiple loan options like a Federal Housing Administration (FHA) loan for first-time buyers, a VA loan backed by the Department of Veterans Affairs (if you qualify), along with other home loan programs available to you. Plus, you need to consider the size of the down payment, how much you can afford to spend on a down payment, and if you have the funds to cover any closing costs–and then go from there.
What’s more, you may be able to afford more home than you think. There is no denying that working remotely, exercising, and generally spending more time than ever in our homes has changed what many people are looking for in their living space.
However, some young homebuyers do not feel they can afford a mortgage payment for a home that suits their growing needs and have decided to continue renting instead. That means they will miss out on some of the long-term benefits of owning a home because they are afraid of buying too much house or going over budget.
An article recently published by NAR noted that many young adults underestimate how much they need for homeownership (monthly payments, homeowners insurance, property taxes, upkeep, repairs, and more) in general. And right now, millennials are also underestimating how much home they can afford, how much interest they would pay over a 30-year mortgage, and how much a home’s value appreciates, on average, over 10 years.
Yet, knowing how much home you can afford and understanding the current market when starting the process are musts—and could be just what you need to stop renting and start buying. Note, the general rule of thumb is to try and keep your total housing cost below 30% of your gross income.
Finally, with mortgage rates starting to rise along with home prices appreciating, putting off buying a home now could cost you much more later. Sam Khater, Chief Economist at Freddie Mac, recently noted, “As the economy progresses and inflation remains elevated, we expect that rates will continually rise in the second half of the year.”
Most experts also forecast interest rates will rise in the months ahead, and even the smallest increase can influence your buying power. So, if you have been on the fence about buying a home, there really is no time like the present to purchase a home.
Today, many young people are entering the home buying process without a large amount of money down and with more than a few misconceptions. But the good news is there are a few tricks that new homebuyers can use to help themselves get through the entire process and get that perfect place.
That said, a crucial tip to keep in mind is that, yes, one of the first things you need to do is figure out what type of home you want and where. But the next steps to buying a home should be figuring out which type of home would be best for you financially and preparing for a mortgage or home loan.
Then, you can start shopping for real estate agents, looking for a favorable mortgage loan interest rate, and taking the necessary steps to find the right mortgage lender or company.
Ultimately, if you feel overwhelmed by the prospect of starting your new home search, you do not have to go at it alone. Navigating the entire process becomes easier and more streamlined when you find the right home loan/mortgage assistance.
Therefore, it is in your best interest to vet multiple lenders and real estate agents while preparing for a mortgage. Doing so will not only ensure that you get a home that is right for you financially, but it will also help you secure monthly mortgage payments you can afford.
Do you have questions on how to get a mortgage and need more information about making a home purchase? Or do you need assistance finding homes for first-time buyers? If so, Sammamish Mortgage can help. We are a local mortgage company from Bellevue, Washington, serving the entire state, as well as Oregon, Idaho, and Colorado. We offer many mortgage programs online to buyers all over the Pacific Northwest and have been in the business of doing so since 1992. Contact us today with any questions you have about mortgages.
Whether you’re buying a home or ready to refinance, our professionals can help.
{hours_open} - {hours_closed} Pacific
No Obligation and transparency 24/7. Instantly compare live rates and costs from our network of lenders across the country. Real-time accurate rates and closing costs for a variety of loan programs custom to your specific situation.