Financial Advice for Millennials Preparing to Purchase a Home

Preparing for your first home purchase is an exciting milestone and a time of celebration. Whether you’re going to be living alone or with a significant other, it’s important to take the proper steps to ensure that you’re financially equipped and organized for this period of transition and independence. Review the following tips to help you get organized and prepare financially for your journey ahead as a new homeowner.

 1. Decide Where You Want to Live

Before you begin your home search, you must decide on the specific area you want to live in. Based on your career, lifestyle, hobbies, and relationships you must consider the benefits or drawbacks of living in the suburbs, city, or further out where there might be more land. This all comes into play when selecting where to search for a home that will allow for convenience and enjoyment. In most cases, you will want to make sure a location is a place that you plan to stay for a few years, otherwise, you might want to consider waiting a little longer before making this large investment. There are some situations where this might not apply but be mindful of this large commitment and focus on making the best decision for yourself in the present moment and a little bit down the road.

2. Determine What You Can Afford

A challenging yet critical piece of this process is figuring out exactly how much money you can spend on a house. This doesn’t mean how much money you have in the bank—rather how much you can spend while maintaining enough financial cushion to pay for other life necessities, trips, home maintenance, or unexpected situations. Avoid putting yourself into a situation early on in your adulthood where you’re struggling to keep up with mortgage payments from unplanned events that require your immediate financial attention. If you want to be a bit more conservative, before purchasing a home that you’re technically approved for a mortgage, it’s recommended that you meet with a financial advisor to discuss your situation in detail to see where you fall.

3. Set a Budget

Setting and sticking to your budget is one of the most difficult parts of searching for a home. You must go in knowing there will always be another option, something bigger, better, and more expensive that will catch your eye—but remember this doesn’t mean that it’s the right choice for your financial well-being. Keep in mind, this is your first home purchase and although you might be looking for a place to grow into, you should not budget for a home you don’t have the financial backing for in the first place. Outlining your budget forces you to take an honest look at your lifestyle, income, and other expenditures to see how much money you actually spend versus save each month. This will largely impact how much you have to put towards monthly mortgage payments and give you a better picture of the type of house you can realistically afford.

 4. Take Care of Outstanding Debt

Before you make any major investments, it’s always a good idea to take care of as much outstanding debt as possible. The reason being, acquiring a mortgage on top of paying student loans or credit card debt will add up and quickly become overwhelming. If you are struggling to pay off your debt, make a plan and stick to your payments—even if this means temporarily postponing your house hunt. This will not only improve your financial state and credit score but will prepare you for large mortgage payments that you will have in the future.

5. Review Insurance Options

A commonly overlooked area of homeowner preparation is acquiring the proper insurance policies that cover all your needs. It’s easy to overlook the specificities of insurance and assume a home insurance policy will cover all emergencies. It’s important to be aware, review coverage options, and make sure the home you are purchasing doesn’t need additional coverage for instances such as hurricanes, flooding, tornados, or other natural disasters.

In addition to obtaining homeowners insurance, it’s recommended individuals shop for a life insurance policy at the same time. When making any major investment it’s important that you have a plan in case of an emergency or unexpected situation where income is lost. Should something happen to you or a significant other, it’s helpful to know that you, your estate, your finances, and future are all protected. It’s also worthwhile to purchase a life insurance policy at a younger age as it typically costs less due to your lower risk of illness or death—allowing you to get the best coverage for your situation.

 6. Start Setting Money Aside

If you decide that you are ready and committed to this decision to become a homeowner, you will want to start putting money away for a down payment as soon as possible. This will ensure that you can begin the process of searching for a home and will be able to afford the initial investment and moving expenses. Along with that, you will want to make sure you’ve been mortgage approved in advance. To prepare in the meantime, you can begin setting money aside in a separate savings account that you won’t touch until you are ready to make your home purchase. This will help give you a cushion as you will need to allocate finances for many different things when you become an official homeowner. Planning early on and getting organized will help reduce the financial burden later on and allow you to afford your new home projects upon moving in.

As a soon-to-be homeowner, it’s critical that you take the time to inform yourself, get familiar with the process, and prepare financially along with all the excitement. Doing so will alleviate future stress and uncertainty as you begin the home buying process and will allow you to feel confident in your ability to handle this investment.