Recently on Inman News, there was an article that focused on millennials renting vs. purchasing a home. It discussed a book written in the 1960’s about investing in real estate. Although the nature of the book is outdated, the basic concept is, if you want to become a millionaire by the age of 65, all you have to do is buy $1 million worth of real estate in your thirties, with a 30 year mortgage and then pay the mortgages off over time.
Now a millennial will most likely look at that statement and think it is absurd. With that being said, that statement is a very basic summary of the book. There are numerous ways to apply this concept. Some may require a great deal of effort, such as flipping houses, and other ways involve high risk. But another way is to just stop renting.
To say “just stop renting”, can be a lot easier said than done. However, here are three helpful tips for Millennials on purchasing a home in 2015.
1. If you are waiting to purchase a home because you want to save a large amount of money for a down payment, the reality is; you don’t have to. The mortgage world is changing right now, for the better. Lender standards are regaining flexibility. Requirements for down payments are going down, in many cases, a down payment is only 3% of the sales price. In 2014, underwriting for self-employed borrowers was extremely strict, but now is moving back towards a reasonable standard.
If you were disqualified by a lender last month, does not mean you shouldn’t re-engage this month. It is a new year, a new market and new guidelines. Millennials shouldn’t assume that just because they can research qualifications online, that they have the ability to self-qualify – or worse, disqualify for a mortgage. Researching qualifications online is a great start, but it is still extremely important to meet in person with a mortgage professional.
2. Search for a home that meets your needs today , your projected needs for a decade. Everyone goes through similar life cycles; you live with your parents/guardians, and then at some point you move out. Once you leave, you have a set of needs for housing, such as proximity to work, nightlife, transportation…etc. But then if/when you start a family, your housing needs will change. Mid-forties are considered the peak earning years, and frequently this is followed by the last move-up in housing. Mid-fifties can bring on the empty-nester era and downsizing to a smaller home. And then when retirement rolls around, a second downsizing may occur, perhaps in a different location. So when you do decide to purchase a home, you should plan ahead accordingly.
3. A home is not an ATM; a home is a long-term investment. The issues that arose during the housing bubble were due to the increase in the pool of buyers, and the thought that the souring appreciation would never end; so many people pulled out their equity (cash-out refinance) and used it to purchase assets, like cars and other depreciating items.
If members of the millennial generation buy appropriate homes for a decade, pay mortgages on-time, don’t do a cash-out refinance, and move-up (or downsize), once they get to a certain age, they will own their own house mortgage-free. That is something no life-time renter will ever be able to say.
Millennials most likely have large student loans, probably don’t want to take on more debt, and view renting as a flexible way to move anytime/anywhere. But as a millennial, it might be time to change your perspective, and start thinking long-term about your life. If you buy sooner rather than later, you won’t look back ten years from now saying you made a bad decision when you got the 30-year fixed rate mortgage under four-percent.
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