The 12 Biggest Mistakes Millennials Are Making With Homes
Settling for an impulse buy too quickly is just one of the mistakes millennials are making.
Waiting for the “Perfect” Home
Millennials buying a home for the first time are up against some hurdles, including the 20% down payment, plus closing costs. With home prices continuing to rise, these hurdles become boulders.
“To play in the market, one must get in the market by buying (and hopefully getting a good deal on) a home that is within their immediate financial striking range,” explains Mia Simon, a Redfin real estate agent in Silicon Valley. “This is difficult for some, as they want the three bedroom/two bathroom home where they can envision raising their children. The problem is that by the time the’ve saved the down payment to afford this house, it has appreciated to the point where it is now unaffordable.” Here are more house hunting and buying mistakes to avoid.
Not Getting Pre-Approved
Millennials are undoubtedly an online-based generation, but that doesn’t mean old school techniques aren’t still valid. While searching for listings online is tempting, your best bet is to meet with a lender to get pre-approved for a mortgage. Showing them your credit report, debt, income and assets will allow them to draft a pre-approval letter to find out how much money you may be qualified for.
In fact, real estate agents look out for these letters to make their job more seamless, while sellers expect such letters as an indicator that you’re serious about buying the home. Be sure you avoid these 12 common mistakes when buying a house.
Not Hiring an Agent
“When shopping for homes on online listing services, you’re not really getting the full picture or price,” explains Full Potential Real Estate. “The home might have smells, sounds, or sights that you’re not seeing while looking at the photos on the listing. Not only that, if you’re interested in a home and reach out to the listing agent, they’re not going to have your best interests at heart. They’re legally bound to the seller, so you may not get the best deal.”
Working with a real estate agent in person allows them to know more about your needs and wants, and gives them the opportunity to work for you to find your future home. Before you start house hunting, here are 26 real estate terms you need to know.
Not Shopping For a Mortgage
Finding the home you want is a dream come true. Making an offer and starting the closing process shifts that dream one step closer to reality. Millennials should be mindful that their loyalty by no means belongs to the lender that pre-approved them, however. It’s in your best interest to shop around for the best interest rates and terms that fit your budget. Check out these 11 things to know about mortgage and interest deductions.
Not Attending a Home Inspection
This is certainly one of the biggest mistakes millennials can make when purchasing their first home. “Do not let your real estate agent go without you to look over the inspection,” warns Full Potential Real Estate. “Do not send your mother or brother or second cousin on the home inspection. Take off work and walk through the home with the home inspector. In fact, make sure you’re involved with the entire process, including hiring your own personally vetted inspector.”
Once all is said and done, be sure you read the inspection report!
Not Getting a Home Warranty
Millennials should ask for a home warranty during closing. A home warranty is an annual service contract that covers the repair or replacement of important appliances and systems. While home warranty policies vary, most cover major appliances, as well as heating/cooling, plumbing and electrical systems.
Unless you purchase a brand new house, you can expect things to wear out and break down, which is why getting a home warranty is so important. It could provide major savings when you need it most.
Who pays for the warranty depends. While real estate agents are known to give buyers a home warranty as a gift after closing, sometimes the seller pays for the coverage to keep the buyer from calling them after closing if something breaks. If neither happens, the buyer should still make the purchase themselves. Before you settle in, you can expect to pay for these 13 things.
Not Factoring In Resale Value
Most millennials buying their first home aren’t swimming in cash, which is why it’s a good idea for them to make sure to factor in resale value when purchasing a home.
“Find something that can build equity (maybe new carpeting, hardwood floors or granite countertops) and that will also appreciate over time (the neighborhood is up and coming, new shops and restaurants are popping up around it),” advises Full Potential Real Estate. While no one can predict the future, millennial home buyers need to think ahead to what the home they’re buying could be worth when they go to sell it.
Not Staying Within Their Budget
It’s easy to look at your mortgage and get caught up in the affordable numbers popping off the page, but this monthly price on the listing doesn’t take into consideration insurance, taxes, homeowner association fees, personal mortgage insurance if your down payment is less than 20%, etc. Do the math of these crucial fees to see if you can really swing the house you want with the budget you have. Here are 40 first-time homeowner pitfalls to avoid.
Buying at the Wrong Time
As much as you shouldn’t wait for the perfect home, it’s also important you don’t commit too quickly. “We typically encounter clients whose number one goal is understandably getting a good deal on their home purchase,” says Mia Simon from Redfin. “The advice that we give is to buy when fewer people are buying—Thanksgiving through Mid-January, or during the month of July, when a lot of people go on vacation and the buyer pool is smaller.”
Forgetting About Closing Costs
Buying a house is exciting, but it also requires you to pay for inspection fees, title, escrow and appraisals, along with various other aspects of a real estate transaction. There are a lot of moving parts that first-time home buyers may not be aware of, which a survey from ClosingCorp of San Diego proves, revealing that two-thirds of millennials don’t take closing costs into account when purchasing their first home.
Emptying Your Savings
Your first home may need various renovations and repairs, which can drain your bank account quickly. In fact, you may not even have money to do such things at all if you emptied your savings account just to purchase your home!
“That’s a growing pain for the first-time homeowner, when stuff breaks,” says John Pataky, executive vice president of the consumer division of EverBank. “They find themselves in a hole quickly.”
That’s why you should ensure you have a savings fund that is specifically meant to cover making a down payment, paying for closing costs, moving expenses and repairs. Here are our top 10 tips for saving money at home.
Misjudging Your Down Payment Amount
It’s easy to borrow money from your local bank, but it’s hard to pay it back! While it’s tempting to use a loan for your entire down payment, first-timers should be weary of mortgage fees. Your best bet is to create a budget for all home expenses, as well as monthly bills, groceries, insurance, etc., so you can have a better idea of what you’ll actually be able to afford for a down payment. Follow these 8 steps to successfully purchase your first home.