During the 2018 National Association of Realtors® Conference in Boston, Chief Economist Lawrence Yun mentioned that “millennials have outgrown their apartments” and are ready for homeownership.
Buying a home for the first time can be an exciting experience, but it can also be a bit mystifying. As millennials go on the hunt for the perfect home, there is a checklist of items that should be considered to make the process easier.
Ready for homeownership? Here are five things you can do now to get you started in the right direction.
1. Check Your Credit Score
Do you remember what your grades were in school? Well, in real life your grade is your credit score. This score tells lenders and other third parties how “financially responsible” you are. Credit scores have a standard range of 300-850. On that scale, a credit score of 700 or above generally means you are a good, credit-worthy borrower. Having the highest possible credit score allows you to take advantage of preferred rates when you buy a home.
Are you suffering from a mediocre credit score? Don’t sweat it. The UltraFICO score is expected to come to the market in 2019 and is expected to boost access to credit for those with scores in the upper 500s to lower 600s. You should also consult with a credit specialist or financial professional who can help you identify the weakest areas of your credit scores and help you improve your performance.
2. Get Your Down Payment Ready
More first time buyers are having a difficult time saving for a downpayment on a home in 2018 versus 2010 when the economy was in recovery mode. According to the National Association of Realtors 2018 Profile of Home Buyers and Sellers, 27% of first-time buyers in 2018 compared to 16% in 2008 had difficulty saving for a downpayment. Determine the range you would want to spend or be qualified for on a home and then work with a financial professional to determine an estimated amount that you should save for a home.
3. Manage Your Debt to Income Ratio
Too much debt can get in the way of your dreams of homeownership—especially if you aren’t bringing in enough income to manage those liabilities. Draft an honest assessment of your monthly debt and income. Your monthly debt may include rent, student loan payments, and credit card debt. Now add all the income sources you accumulate throughout the month. Take your monthly debt amount divided by your income. That’s your debt to income ratio. So, if your monthly debt is $1,500 and your monthly income is $4,000, then your debt to income ratio is 37.5%.
What’s an ideal debt to income ratio? You can use the 36% rule as guidance. It’s a standard used by most lenders to determine the maximum about of your gross income that should go toward debt. Do whatever it takes to ensure your debt to income ratio is under 36% to increase your chances of receiving a qualified mortgage.
4. Determine Where You Want to Live
What matters most to you when buying your first home? Do you want to be near public transportation, malls, food, and schools? Are you seeking a small, close-knit community with running trails and parks? Determine what your criteria are for your first home and then identify neighborhoods that match your desires. This will make the homebuying process much easier.
5. Find a Realtor
You don’t want to walk the process to homeownership alone. Start researching realtors in your area who can walk you through the process and expose you to the resources that may be available to you during the homebuying process. When searching for a realtor, work with someone who has the knowledge, professionalism, and personality to make you feel empowered during the process. You should also seek out a realtor who offers buyer consultations. During this meeting, the realtor can help you identify areas of opportunity and educate you on property matters that you weren’t familiar with before.
This is a great checklist to get you started. If you want to keep going in your pursuit to find and afford your dream home, talk to a financial professional, CPA, and/or Realtor to keep you going on this journey. Do your research and make sure you have people on your team who can lead you to the best way to achieve your goal.