A lot of my peers are getting to a point in their lives where they are ready to purchase their first home. Rent prices seem to never waiver and many young people are finding themselves putting down roots in their communities. There are a lot of "reports" out there that claim that millennials don't want to be encumbered by life's responsibilities and prefer a kind of nomadic lifestyle. That may be true for many, but eventually millennials reach a threshold in their careers, relationships and lives that motivate them to stay put and buy a home. At the moment, first-time buyers make up around 32% of the market share of home purchases. That is at a three year high and is expected to continue to rise.
I don't mean to focus so much on millennials in my posts, but as I have written before, there are more millennials than baby-boomers. Millennials make up a very strong collection of consumers and businesses recognize this. It's blatantly obvious which demographic companies are appealing to when you pay attention to the style and content of commercials and television. Generation Y composes the largest group of consumers out there and I happen to belong to this group.
The biggest hinderance that generation Y faces when purchasing a home is the access to cash for their down payments and closing costs. Those of us that are fresher in the work force can tell you that there is no surplus of quality jobs and wages have been stagnant for a decade. This means that many young people are simply under-payed, which makes it difficult to save for miscellaneous expenses. One thing about millennials is that we are generally pretty thrifty. We have to be. It is a necessity rather than a hobby. There are a lot of young people who forego purchasing vehicles in favor of mass transit/bikes, drop cable packages for streaming services, visit malls infrequently and shop online and just consume less in general. This allows millennials to save some of their wages for things like experiences, travel, gadgets and now; purchasing a home.
According to an article by Realtor Magazine entitled, "What First-Time Buyers Are Willing to Sacrifice," young people are polling that they are very likely or somewhat likely to forego modern conveniences (cell/internet/cable packages, Starbucks, eating out, etc.) in order to save up for a down payment on a home. The article is based on a poll conducted by TD Bank of around 1,000 first-time buyers and shows that around 62% of these folks are planning to purchase within the next year. The study also finds:
- 68% want a home that is move-in ready, the remainder want a fixer-upper.
- 43% want to purchase in the suburbs, the remainder in urban areas.
- Ranked their wants high on outdoor space, aesthetics and green/smart technologies.
- Around 22% can't find a home they want in their price range.
Typically, a down payment will range anywhere from 5-20%. The lowest down payment loan (other than VA, which are 0 down) is an FHA, which asks for a minimum 3.5% down payment. Almost all lenders would prefer that you as a borrower can provide 20% down because it proves that you are capable of saving and being responsible with your finances. If you have not yet reached 20% of your loan, you will almost certainly be required to pay PMI (Private Mortgage Insurance) which varies according to your loan. PMI usually costs $50-$150 per month. It is just an added security that the bank collects until they feel that you are likely to repay the loan in full. Once you have payed off 20% of the principal, your PMI will go away.
There are a few other smaller fees associated with purchasing a home that many people are not prepared for. There are inspection costs, which usually run about $500 for both a termite inspection and home inspection in the Charleston area for an average home. The buyer needs to have some cash available for the earnest money deposit (good faith deposit that shows you do intend to buy the home). This is credited toward the purchase later and it can vary from a few hundred dollars to 10% of the purchase price. This amount can be negotiated according to the buyer's situation. There are often a few lender (mortgage provider) fees, as well. Sometimes the lender can request that the buyer pay for the appraisal(s) and the points (loan origination fees) out of pocket. Though usually this is not due from the buyer before close. Normally, those fees can be rolled into the loan.
The interesting thing about real estate is that almost everything is negotiable. If you're having a difficult time paying for or satisfying one thing, someone on your team should be able to find a solution to that. Your Realtor, lender, insurance provider and closing attorney are all on your team and want to complete the transaction as much as you do. The best advice that I can give anyone interested in purchasing a home is to contact a good Realtor (LIKE ME!) to talk about the process and costs involved, as well as go ahead and sit down with a lender to discuss what they need and get yourself qualified to borrow from them. Once you have prepared yourself to satisfy the lender and you know your limitations, it makes the entire home-shopping process much more efficient.
As always, if you or anyone you know needs a Realtor, let me know! I am here to help!
Troy Franklin Gandee