Steps and Tips for a Millennial Purchasing Their First Home
You did it, you defied the odds as a millennial! You survived the recession apocalypse and saved enough money to purchase a home. Your participation trophy should arrive in the mail in seven business days.
In all seriousness, buying a home is a huge accomplishment and an exciting new chapter in your life. Still, it can also be overwhelming and confusing. Here's what to expect plus a few tips to get you through the process.
First Things First: Check Your Credit Score
Your credit score is the very first thing you need to check even before you begin the home purchasing process. In order to get a mortgage, you have to prove you're financially stable and trustworthy enough for a bank to loan you money. The first thing they look at is your credit score.
Determine Your Price Range
Everyone loves to check out the local million-dollar homes on real estate websites, but that doesn’t mean you can afford one. Be aware that if you have good credit, you’re likely be pre-approved for a mortgage that costs far more than you’re likely to spend. It’s your responsibility to recognize what you can actually pay.
Get Pre-Approved for a Loan
Do your research and find a good mortgage broker who can work with you on finding the right loan. Everyone has their own goals and needs when it comes to buying a home (low payment, no mortgage insurance, etc.), so one type of loan does not fit all.
Make Sure You've Saved the Liquid Cash Needed for a Downpayment
If you have enough money for a downpayment in combined savings and investments or some other source, cash out anything that isn't liquid. Your mortgage company will go through your bank statements with a fine-tooth comb, so you want to be able to prove you have the funds you say you do.
Save Even More Cash
Saving up enough money for a downpayment is a considerable accomplishment, especially as an underpaid, underappreciated millennial, but unfortunately, that's only the beginning of your costs. Before you start the process of looking at homes, make sure you have money for expected and unexpected costs.
Do Your Research
Now that money is out of the way (for now), the fun can begin! You're close to finding your dream home. However, not all dream homes are created — or priced — equally. You should do some research to figure out where you want to center your search for a house.
Make a “Must-Have” List
You have your target zones and you know what kinds of homes you can realistically get in them. Now you should think about what you must have in your new home. The best tip is to make two lists: "must-haves" and "like-to-haves."
Find a Good Realtor
You're probably already researching realtors at this point, but don't reach out to one until you're good and ready so that you don’t waste their time — buyers' agents don't make money if they're just helping you do your own homework. Now that you know what you want, get in touch with a realtor.
Discuss the Buying Process Up Front
Buying a house isn't as simple as finding the home, putting in an offer, and moving in — if only!). There are a lot of steps involved, all of which are essential to ensure you make a good investment. You didn't work three jobs to save all this money just to end up in a financial pit.
Ask Every Question You Can
As you walk through the buying process, ask any and every question you have. Even if it sounds stupid, ask it anyway. Remember, this is an investment and one of the biggest purchases you will make in your lifetime, so it's important to understand every step.
Get an Estimate for Closing Costs and Inspections
You've probably discussed your down payment with your mortgage broker, but that's not all you'll need to close the deal. As you get closer to the closing date, your home will need to have various state-required inspections, each of which costs money.
Decide if You Have the Money for Closing Costs and Inspections
Real talk: it can be a huge shock when you learn how much (more) money you need to purchase a home. Once you have all of the numbers in front of you, take a look at your finances and decide if you actually have the money to move forward in the process.
Have Your Realtor Set Up an MLS Search
The depressing financial parts are out of the way. You know you can afford your new home, so now you get to see your options. Have your realtor set up an MLS search to show you homes the minute they're on the market.
Schedule Some Showings
Once you're in the MLS site, you can weed through the homes that meet your original parameters, such as location, price, square footage, etc. If you find a few you like, tell your agent right away so they can set up a showing for you to see it in person.
Tour Homes as a Critic, Not an Excited Buyer
Be cool. The house you're looking at may have a beautiful open floor plan and a bright, airy master bedroom, but there are more things to consider than just aesthetics when you're walking through the home. Look at the boring things like baseboards, ceilings and window frames to see if the house has good bones.
Chances are good that you won't remember everything you see in a house, especially if you walk through multiple homes in one day. Be sure to take notes throughout the process so you can remember what you saw in each home.
Assume Every House Has Security Cameras
Sellers are supposed to disclose if they have any security cameras inside the home, but it doesn't always happen. Even if they don't have them inside, many homes today have doorbell and outdoor security cameras — many of which record sound.
Make an Offer
You love the house, area and price, so it's time to make an offer. Work closely with your agent on this — they’ll be able to look at comparable houses throughout the neighborhood to decide if the sellers have priced the home right.
Negotiate and Get Under Contract
Despite all the work you put into your first offer, it’s more than likely that it’s just the beginning. Keep in mind how much you're willing to spend on the home during this process, and remember that your bank is unlikely to give you a mortgage worth more than the home is appraised for. The seller may also reject your offer outright. If that happens, it’s back to house-hunting.
Don't Buy Any Furniture or Appliances
Just because you're under contract doesn’t mean you're free to do whatever you want. You should use this time to finalize your mortgage, lock in your interest rate and get everything set up for closing. This means that your finances are still undergoing careful examination.
Get Homeowners Insurance
Many realtors can make recommendations when it comes to homeowner insurance agents, but always do your homework. Not all companies offer the same coverage, and you shouldn’t assume your car insurance provider is the best choice just because they offer you a multi-policy discount.
Take Due Diligence Seriously
The due diligence period is there for a reason: to protect you and your investment. Be present at every inspection and ask questions. When your inspection report comes back, go through it line by line to make sure there is nothing that could be a problem down the line.
Schedule Extra Inspections
As it turns out, a home inspection isn't as thorough as it may seem. Despite the considerable report your inspector provides, all they did was ensure things were working at the time of the inspection. If it's winter, they have no idea how the AC unit is going to operate come August.
Ask for Problematic Things to Be Fixed, and Be Prepared to Walk Away
Once your inspections are done and you're sure there are no termites — don't proceed if there are termites! — look at the reports carefully to determine what if anything you'd like fixed before taking ownership of the home.
Schedule All the Things
Everything is in order, all the problems are fixed and you're confident about the house — you are free to do a little happy dance now. Once that's over, it’s back to work. If you haven't done so already, use this time to start scheduling things for your move.
Put All Utilities in Your Name
Aside from your internet bill, you'll also be paying for utilities like water, trash, recycling, electricity and gas. Welcome to homeownership! Right now, all of those utilities are in the sellers' names, but they’ll be taking their names off the accounts effective the day they move out.
Do Your Final Walk-Through (and Be Prepared to Push Back Closing)
Before you go and sign all your closing papers, you'll do a final walkthrough with your realtor. During this time, you should check to make sure everything that was supposed to be fixed is in fact fixed and that there are no major problems like new damages.
Get Ready to Sign Your Name
Remember when you were a kid and you signed your name over and over trying to perfect your signature? You didn't know it at the time, but you were prepping for closing day on a house. When it's time to close, you'll go to the office of the closing attorney or title company, and then the fun begins.
Wait a Little Longer
You're now officially a homeowner, but if you purchased a home that someone was currently living in, you probably won't get your keys right away — sorry!. Unlike the good old days before the recession, there's not a lot of wiggle room between selling and closing on your new home — it often happens the same day.
Enjoy Your New Home
You made it! After waiting through years of saving and what felt like years of the home purchasing process, you are officially a millennial homeowner. You did what so many people your age feel is impossible, so enjoy the accomplishment and celebrate.