With the housing market continuing to improve, so are the attitudes of millennials about buying their first homes. A recent study shows that 65 percent of people between the ages of 18 and 34 who earn more than $50,000 a year are now interested in buying a home. This is a major change from just a year earlier. The economic downturn hit this population especially hard and most didn’t see home ownership in their near future. But the tides seem to be turning and many millennials are starting to consider buying their first house. So what should you know before you make what is the biggest investment that most people make? There are several important factors to weigh to ensure that purchasing a house will not negatively affect your financial health and sustainable home ownership in the future.
1. How long do you plan to live in the area?
Home ownership also offers stability by putting down roots in a community and by stabilizing the cost of housing, assuming that you have a fixed interest rate. But stability can become a disadvantage if you have to move. You may not be able to sell your home quickly if you need to relocate and it is certainly more complicated than ending a lease. You don’t want to find yourself committed to two housing payments at the same time. The general rule is that if you are not planning on staying in the area for 5 years or more, it would be more cost effective to rent.
2. How much can you afford?
Because of the long-term commitment and possible credit ramifications, more than any other time, creating a spending plan is essential when considering purchasing a home. Track your spending for one month to provide a good sample of your actual spending. Make categories for fixed, periodic and variable expenses. You can do this using software programs or by keeping a spending journal. Your bank or credit union may offer online resources for you to use. Once you know how much you are spending you can start to adjust these habits to determine if home ownership is a realistic goal.
3. Will you be able to get a loan?
The recent housing crisis has made it more difficult to get a loan for all consumers, but it might be a little harder for millennials without substantial credit history or lower salaries. The best way to know if have a chance to get a loan is to be knowledgeable about your financial situation. Know your credit score, your debt to income ratio, and how much money you have for a down payment.
Ready to Start Preparing?
We can help you prepare your finances for home ownership! Our counselors can provide your credit score, review your credit report with you and make suggestions for how you can make the most of your money. We encourage you to sign up for this free service, especially if you have credit card debt, and then also be sure to check out our pre-purcahse counseling.