Purchasing a home is one of the greatest investments you will ever make. When doing so, you'll want to be prepared both mentally and financially. First-time home buyers must work closely with real estate professionals and a mortgage lender to make sure they are purchasing a home that meets their needs and making the right financial decisions.
Millennials, ranging in age from 23 to 38 years old, make up a healthy percentage of our consuming population. However, Millennials are not buying homes like younger people of past generations did. They are renting longer and holding off on purchasing their first homes. There are a few reasons for this.
1) Millennials are not purchasing their first homes because they are of the instant gratification mindset. They have a tendency to purchase things and rack up credit card debt because they can’t wait until they can pay for it with money they have.
2) Their priorities have changed. They spend more money going on vacations and attending more events such as concerts, sporting events, and other "adventure" activities.
3) Credit card debt hinders Millennials in regards to being able to qualify for a mortgage loan. Their debt-to-income ratio is too high so they are not able to qualify.
4) Millennials are not purchasing homes like people their age used to because the cost of housing has increased. The home value of a home a Millennial is looking to purchase is a lot higher than it used to be. Salaries and wage rates have not gone up enough to keep up with the increase in the cost of housing. For example, a parent of a millennial might have purchased a home for $185,000 20 years ago. That same home might be as high as $350,000-$400,000 now, for their millennial child. The cost of homes has outpaced the growth in income.
5) Millennials aren’t buying homes as in past generations because of their higher student loan debt. Going to college is more expensive than ever. This has caused Millennials to take out more money in student loan debt. Student loan debt counts against their debt-to-income ratio.
If you're in this age category, ask for counsel from a Real Estate professional or mortgage lender. They'll help cobble together strategies to pay down credit cards, student loan debt and more. It is recommended that Millennials talk to a mortgage lender about six months before they want to purchase their first home. This way, if they cannot be approved immediately, they'll have time to pay down debt and prepare themselves.