For the Prospective Millennial Home Buyer: To Buy or Not to Buy
In December of 2017 I closed on my first home. Yay right?! Eh. The process was one of the most annoying I have ever been through. I had to submit tons of information and most of it needed to be submitted multiple times. To make matters worse, I built my home from the ground up which means I would have to go through 9 months of submitting and resubmitting certain documents so that my lender could ensure my financial state hadn’t changed in order to still qualify for the loan. I’ll admit that I was wrapped up in this idea that I had set for myself long ago that I needed to have a home by the time I turned 30. I sometimes struggle with the notion that if I hadn’t accomplished a particular goal by a particular time that I had failed. I am slowly moving away from this mindset and just letting life happen, so I’m telling you right now, if your decision to purchase a home is based solely on some arbitrary age goal, reconsider! Measurable goals are important but your age shouldn’t be a determining factor for when you achieve them. Things can happen much more organically when they’re not the result of an age requirement. Studies show that more millennials are moving away from home buying and opting into in town apartment dwelling.
Don’t get me wrong, I am happy that I bought my home when I did. I live in a bustling area of Atlanta that is sure to see a lot more expansion within the next 2-5 years. To date, my property value has already increased by $52,133 above the purchase price in the 11 months since I’ve moved in. There are various projects underway in the area and I anticipate that I will be seeing a much larger return on my investment when I decide to sell. Although I don’t have any regrets, there are some things you should know before you make a decision that might be detrimental in the long run.
Location! Location! Location!
The area in which you chose to buy your home can be make or break. Consider what’s most important to you. Are you expecting a huge return on all you invested? If so, an up and coming area with expansion projects might be worth considering. Do you have children and if so what are the schools like in the area? You might like where you live but if your children won’t get the best education it might be better to look elsewhere. Do your research on school districts and particular schools in that area. How important is your commute? Long commutes can be time consuming and costly. When looking for potential places to call home, calculate your commute to see just how much time you’ll be spending on the road each week. Be sure to take rush hour traffic into account.
Owning a home can be very rewarding. It’s also nice to have something you call your own. This venture can also be very expensive. When I was renting I could always email the complex’s maintenance team and let them know that the dryer had stopped working, or that the sink was leaking. When you own a home there is no on call maintenance man with a plethora of resources to get the job done within 24 hours (that is unless you or your partner is indeed a maintenance man). Things break, things get old, and repairs and replacements cost money. Having funds to handle the unexpected is critical.
If you don’t already own your home having available funds is still important. The amount of my closing costs changed 3 different times. Although the amounts weren’t significant, I had to make sure I was ready to come up with the extra funds. On top of the down payment amount other fees that might make up the closing costs can include loan origination fees, discount points, appraisal fees, title searches, title insurance, surveys, taxes, deed-recording fees and credit report charges. I also had to pay the builder earnest money before I could be considered under contract. Earnest money is the money paid to confirm a contract and lets the seller know that you are a serious buyer. The earnest money is held in an escrow account until it is time for you to close and then goes towards your down payment.
Your lender might ask that you pay down some debt so that your debt-to-income ratio decreases. This might help you in getting a more attractive interest rate. You should also take some interest in what is going on in the economy. The prime rate or “prime” has increased twice since I bought my home. Prime is the lowest rate of interest at which money may be borrowed commercially and greatly affects home buying because as prime increases so does the rate you might be able to lock in for your home loan.
I have heard people say that they want to buy a home because rent is likely to go up annually if you decide to renew your current lease. You may encounter this same thing with home buying by way of property taxes. The amount you will pay in property taxes will be based on what your home is appraised at or its current value. This number is multiplied and then used to determine how much more you will pay per month. Keep in mind that higher populated areas might experience higher property taxes. Filing for homestead exemption in your county could help lower the amount of property taxes you have to pay.
Although I did not use a realtor, I would suggest the use of one. I searched for homes on my own and knew exactly what I wanted. I didn’t want someone trying to convince me to get something that I didn’t want or telling me that I was out of my price range. I knew exactly what I wanted, exactly what I was willing to pay, and I didn’t need the interference of a third party. I also figured that since I was buying a brand new property I didn’t need a realtor to be the middle man between myself and the seller since I had direct contact to them. Realtors can be an advocate for buyers though. They can help negotiate the price of the property and extra perks. A realtor might be able to convince the seller to take care of your closing costs and he or she can provide a wealth of knowledge around the process. They can also serve as the middle man between you and the lender. If you do decide to go with a realtor, take heed to their advice. After all, this is their niche but stand firm. If you know what you want and refuse to be swayed make that known. You know yourself and ultimately you have to live in the home, not your realtor.
Is Buying Really More Cost Effective than Renting?
In my instance the answer is no. But I also paid a pretty penny for my home. I knew going into the process that the type of home I wanted and the location would have me coming out of pocket more per month. But That worked for me and my wallet and it might not work for you. One rule of thumb to remember in this process is to MIND YOUR OWN POCKETS! Just because your best friend’s cousin’s sister has a spacious 5 bedroom house and only pays $900 a month does not mean that you will. Current interest rates, property taxes, home owners insurance based on the area and your credit profile all contribute to how much you will pay monthly. You also have to take into account all that goes into buying a home and the upkeep. With rising home costs across the US depending upon the purchase price, you might be better off renting until you are fully comfortable with what you will be spending to maintain your home. Again, I have no regrets. I am so in love with my space. I look forward to going home every day and I genuinely like just being at home. Honestly, I would do it again but that is because I was prepared. Hopefully my experience helped to prepare you some too. But if you are in the contemplation phase and have doubts after reading this you might want to think twice. You don’t have to do this just because the people around you are, or because you’ll consider yourself a failure if it’s not accomplished by a certain age. There is a lot more that goes into buying a home than celebrating that you did it.