Approximately 43 million people are 25 to 34 now. That’s the age when Americans typically buy their first homes. Millennials and their cohorts outnumbered all other age groups of home buyers last year. Do you fall into this age group? If yes, are you prepared?
Do The Math
To be sure you’re in the position to afford a home, put the numbers down on paper. Lending institutions typically follow the 28/36 rule, which means that your mortgage payment, property taxes and insurance should not take up any more than 28% of your monthly gross income. Add to that your total debt payments, including college loans and credit card debt, which should not total more than 36% of your gross income. Lenders also look at your credit score to ensure that you’re in stable financial condition to take on the responsibilities of a mortgage. Ultimately, the sweet spot is affording ongoing monthly costs without missing a beat. This will require job stability, commitment, maybe some sacrifice. Start by paying off your small debt payments.
Check out our Anchor Realty mortgage calculator to help you figure out how much of a house you can afford.
Your Realtor can help you stay organized by letting you know what documents you will need. In most cases, you will need your government issued ID, most up-to-date credit report, a verification form from your employer, W-2 forms, federal tax returns, and bank and asset statements.
Study the Neighborhood
Looks can be deceiving. You need to know and understand which neighborhood is best for you, which can help you to gauge your home’s resale value. By knowing the value of surrounding properties, you will know if the nicest home you want out prices the other homes. While it may appear like a good idea, your home won’t appreciate at the same pace as the others around you. It may also be difficult to unload once you’re ready to buy up your next home. A real estate agent will be able to help you understand the trends in the real estate market and give you feedback on the areas you are looking at.
In Summary, your home-buying journey revolves around people and preparation. On the people side, find a local expert Realtor who speaks your language, and then find a lender or mortgage broker to help you get pre-approved for a mortgage. These professionals will help you understand what you can afford, and that translates into the trade-offs you will need to make between your wants and needs.