At some point in their lives, 85 percent of young people expect to own a home. This is good news because young people are prioritizing home ownership. In fact, the number 1 mistake you can make as a millennial is not purchasing a home!
If you are ready to get started, here are 8 steps to first-time homeownership.
Step 1: Study Your Finances
The first step involves identifying where you are financially. This means looking into how much you earn, save (if you are saving), and how much you spend every month. When you don’t know where your money goes, it will be impossible to put together a plan to achieve homeownership.
You should also check your credit rating, which will affect your mortgage interest rate. Financial tools like the mortgage calculator with PMI can help you find out how much you can borrow.
Step 2: Find Out How Much You Can Afford
The best strategy is to ensure that you do not spend more than 28 percent of your monthly gross income on housing. Remember, monthly payments involve much more than just mortgage. You should budget for expenses like property taxes, insurance, and interest on the mortgage.
Step 3: Build an Emergency Fund
From a financial planning point of view, it’s critical that you have an emergency fund, especially for homeowners. The emergency funds will help you deal with things like broken appliances and roof leaks. Owning a home is a huge step because you cannot call a landlord whenever your washing machine breaks down – you have to pay for the repairs yourself.
Step 4: Put Together a Down Payment
You don’t always need to put some money down when purchasing a home nowadays and the amount you put down is personal. However, a smaller down payment means you’ll need a larger mortgage loan and pay for higher interest. The optimal amount is 20 percent, and if lower, you will need to cater for Private Mortgage Insurance (PMI).
Step 5: Plan for Surprises
A down payment is not the only thing you need to plan for. You also need to budget for expenses like insurance, property taxes, moving costs, closing costs, and maintenance. If purchasing an older house, consider things like insulation and heating will need to be redone.
Step 6: Prepare for Mortgage Pre-Approval
The pre-approval looks into your creditworthiness, telling you how much a lender can offer, and may make the difference between winning or not. Once pre-approved, you should start hunting for neighborhoods within your ideal price range. Online platforms like Redfin, Zillow, and Trulia, and real estate agents can help you.
Step 7: Know the Neighborhood
Make sure you actually take a walk around the neighborhood – during the day and at night! Make sure that the local community has all the amenities you consider essential. After all, you have the option of changing your home’s finishing, but you cannot change the location.
Step 8: Make an Offer
Home shopping can be an energy draining process. However, do not make an offer just because you are desperate to finish the process. On the other hand, don’t buy with your heart since it can lead you into purchasing something you cannot afford.
In the End…
While the entire home buying process seems tedious, in the end, it will probably be one of your most cherished moments in life. Plus, planning to purchase a home can be unexciting, but it is a critical step to owning your own home. Purchasing your home is a significant expense for anyone; therefore, you should take it seriously and plan for the adventure, well in advance.