Millennials need to think hard — far beyond the daydream — before making the big leap into home ownership.
With a little extra planning, that first home purchase can be the dream it's supposed to be.
This article is part of a promoted series and not produced by the editorial staff.
Home ownership is the crux of the American Dream, but recent studies suggest many millennials are risking its other mainstays — like retirement and even the ability to make ends meet — in their rush to achieve home-ownership status.
Dipping into retirement savings, overextending themselves financially, and not giving due diligence to the home-selection process are just a few of the reasons many millennials are experiencing a serious case of buyer’s remorse soon after they’ve been handed the keys.
So what can you do to avoid making the same mistakes of your generational comrades? Take heed of the old adage “slow and steady wins the race.”
While you may not be first to the homeownership finish line, you will win financial security, retirement and yes, even a home to call your own, in the end.
Even when you’re young, saving for retirement and saving for a home should not be an either/or scenario. Instead, keep your retirement plan intact and start a special savings account exclusively for the purchase of your new home. With a few nearly painless lifestyle changes, you’ll be packing up those moving boxes sooner than you may think.
If you are someone who hands over the average $3.25 a cup to your local barista every weekday morning, you could save $780 a year by simply making your brew at home. Likewise, eating out is draining your bank account even more quickly, costing an average of $12 to $15 per meal. Simply bringing your lunch to the office three days a week could rack up savings of as much as $2,160 per year.
For other ways to save, consider less expensive staycations that are more economical than an elaborate getaway, shopping for used clothing and goods, or cutting the cable cord. You will be surprised how quickly little savings add up to one big down payment.
It’s important to consider a variety of factors to make the most of your investment of buying a home. Millennials are in the stage of life where changes happen fast. Ensure you won’t outgrow your new investment too quickly by allowing room to grow as life events — such as marriage, having kids, and even career changes — increase the number of rooms and square footage you’ll need.
Another one of the most important parts of buying a new home is completing an inspection after your offer has been accepted, which will alert you to any imminent or future repairs necessary. No matter how much you love a home now, you won’t love it when it turns into a money pit of repairs.
If the inspection leaves you feeling less than comfortable, negotiate repairs up-front or move on and continue your housing search.
The last thing you want to feel when you’ve finally made the leap into your new home is stretched too thin. Before getting your heart set on a certain home or neighborhood, really evaluate your budget to determine what you can actually afford.
Most experts recommend keeping your mortgage payments and other housing costs (including insurance, property taxes and neighborhood fees) below 28 percent of your monthly income. It’s also best to put down 20 percent to avoid paying PMI, or private mortgage insurance, which will increase your monthly payments and the total amount you end up paying for your home. You also may want to allot for unanticipated repairs, planned renovations, and new furniture when considering your budget since you will have to come up with the finances for these expenses separate from your mortgage.
When you stay within your financial means, you can enjoy the perks of your home rather than resenting the financial hole it’s put you in. Start your path to making the best homebuying decision for your budget today by pre-qualifying for a home loan.
It’s one of the quickest and easiest ways to determine what you can afford to invest in your next home.
For more homebuying insights and tips, visit www.myamcap.com.