Millennials comprise a large percentage of first-time home buyers purchasing single-family homes. Thriving in their careers, having children and often bursting at the seams in their current housing situations, millennials are ready to make their move.
During the economic collapse of 2007, millennials ranged in age from middle schoolers to folks just starting their careers. They grew up in the midst of the financial conversation. As a result of this early financial education, they learned beneficial lessons surrounding their relationship with money. As a result, millennials are proving to be better savers than previous generations. A recent study by Bank of America, states that 1 in 6 millennial has saved over $100,000.
You may have the funds now, however you need to ask yourself important questions…how long do I plan to be in this house? Will I be transferred or am I looking for a career move?
The Five-Year Rule
When you purchase a house, the general rule is that you want to be sure you’ll be in the same location for at least five years. Otherwise, you’re probably going to take a financial hit.The first hit is your closing costs. Each time you go through closing —buying and selling —money hits the table. This can easily add up to thousands of dollars, and limiting how often you have to pay that kind of money is always a good idea.
And you take a second hit when you look at your mortgage statement to see exactly where your monthly payments are going. The way mortgages are structured, you pay much more interest in the first few years you own a house. Usually, it
isn’t until you’re about five years into paying down your mortgage that you’ve made enough progress on the principal to make it a better deal than paying rent each month. If you add in a couple of other factors, you can make buying a house that you don’t plan to stay in long-term a better choice.
The biggest factor is how much you’re going to pay on your mortgage. Many buy as much house as they can afford, according to what lenders offer them. That’s usually the upper end of what you can financially manage. If, however, you buy at the lower end of what you can afford and make extra payments,you can pay off a bigger chunk of the principal. You need to run the numbers for the specific house you’ve got your eye on, but you can often come out ahead.
You may also consider buying a house you won’t stay in for five years —but that you also won’t turn around and sell. Perhaps purchase a house, start paying it down, and fix it up so that you can later rent it out. You do need to be careful to choose a house you can afford in addition to a mortgage for your next home,even if you can’t find a renter. There are plenty of other arrangements that can work out similarly, but you need to study up on real estate before making such a choice.
Your United Northern Mortgage Bankers, Ltd. licensed mortgage loan originator will be happy to review your goals and present mortgage financing options from our extensive portfolio of mortgage programs to help you achieve your goals. We have special SONYMA programs for first-time home buyers as well as FHA 203k loans which allow you to borrow money, using only one loan, for both home improvement and a home purchase. We also have special programs for community heroes (police, fire fighters, military active and retired military personnel and first responders) and medical residents.
We look forward to hearing from you.