Are You Buying It? Things To Consider Before Purchasing A Home
Are You Buying It? Things To Consider Before Purchasing A Home
If you’re a millennial who is contemplating buying your first home, you may be wondering how you compare to your peers in regards to home ownership.
In 2011, the median age for a first-time purchaser was 31, according to the National Association of Realtors’ Survey of Home Buyers and Sellers, and their median income was just under $62,000 annually. Figures like those may be of great value in deciding whether it’s truly affordable for you to buy a house.
The Basics
It comes down to two simple things: finances and lifestyle. Even if you will be approved for a loan, you still need a considerable chunk of money for a down payment, home inspections, repairs, moving costs, etc. If you’re on a fixed income or don’t have a lot of savings it can be difficult to compile a large sum.
Finances and Lifestyle
First, you may want to look at small lifestyle changes you can make to save more money. For example, if you have a large car payment, consider downsizing to a used car or refinancing your car loan. Some adults opt to save money by temporarily living with parents or relatives. It sounds drastic, but Pew Research shows 36 percent of millennials lived with their parents in 2012 and that number is on the rise. There are many reasons for this trend, but one of them is young financially savvy adults taking the opportunity to save money for their own homes.
If you’re trying to make more money instead of just saving what you have, sometimes you have to get creative. Odd weekend or evening projects can serve as extra income that strictly goes toward your new home. You can live a minimal lifestyle, if only temporarily, by downsizing your belongings and selling an extra car, exercise equipment or electronics that you may not necessarily need. If you already have regular payments coming in from another source, such as an annuity or structured settlement, consider how you could maximize that income. For example, payment from structured settlements can be sold for a lump sum of cash sooner for a down payment. If you have a structured settlement, you may want to determine if selling some or all of your payments to a company like JG Wentworth is the best option for you.
A professional can help you determine how much you would save and make when you’re weighing these options. Consult a financial advisor if you’re unsure of where to start or need a detailed plan of how to reach your monetary goal.
Critical Considerations
If you want to do some research on your own, an interactive calculator, which allows you to compare the particulars of your current and planned expenses, can help you start discovering if you’re financially able to purchase a home.
Weigh your personal and financial pros and cons before making the decision — and most importantly, be honest. Some things to consider include:
- How’s your credit? Get detailed copies of your credit report and make sure there are no discrepancies. If you’re in debt, you should pay off as much as you can. This will lower your financial responsibility and improve your credit rating for a better mortgage approval. A tip for paying off debt? Start with the smallest amount owed and pay it off completely. Work your way up, smallest debt to largest, to get rid of those accounts as you pay them off.
- Weigh the pros an cons of renting versus buying. For example, renters call the landlord to fix a broken appliance or resolve a plumbing issue. Homeowners call a repairman — and foot the bill. Renters usually face rent increases every one to three years, while being a homeowner means you can deduct the interest you pay on your mortgage as well as your property taxes on your income tax return.
- What are you planning on putting down? Once you think you’re ready, if you can come up with at least a 20 percent down payment, you can avoid what’s called Private Mortgage Insurance (PMI) — an extra fee paid up front or every month that protects the lender in case you default on the loan, according to BankRate.com. You can still qualify for a mortgage with less than 20 percent down, so shop around with private and public lenders who are willing to work with what you have.
- There’s always time. Owning a home gives you the chance to increase personal wealth as you pay down the principal over the life of the loan, but everyone’s situation is different. If you decide now is not the perfect time to buy, when will be? Set a realistic goal and create a detailed plan to get you where you need to be.
