Home Buying Tips for Every Age
Home buying at any age is stressful and uncertain. With home prices expected to soar in 2018, this doesn’t necessarily mean that you should succumb to the fear of missing out or try to play the market.
Buying a home is a great way to build out your asset sheet and start your future. Depending on your age, there are a variety of perspectives you have to look at home buying through. Here, we’re going to discuss three stages of home buying based on your general age and provide you with some tips to get the most value out of your property and help you save money.
Purchasing a home in Your 20s
First-time home buying is the biggest investment you can make and it’s often very scary for people fresh out of college and trying to start their career. Although home buying among millenials is less than the previous generation, early 2017 has marked the first year that millennials became the country’s majority of home buyers.
Generally, I recommend buying a cheaper home as soon as possible with some equity attached to generate asset value for yourself. Renting is a poor investment, although we’ve all had to do it. With the right home and long-term mindset, you could eventually be the one renting out your vacation home and begin collecting dividends off of your assets.
Check your Credit
First time home buyers will have difficulty acquiring a low-interest loan if their credit is straddled by unpaid debt and active loans. Some mortgage lenders may require up to a 20% downpayment, which can be a huge strain on your savings, especially when you’re just starting out. Unfortunately, many millenials struggle to keep their credit score high, with the average millenial FICO score being 723 in November, 2017.
Be sure to build up your credit, whether through paying off a credit card or car loan. Pause all new credit six months before taking out a loan to show mortgage lenders that your financials are stable. Your credit also takes a hit each time you take out a new loan so it will impact your APR.
Evaluate your Financial Situation
Once you got the loan, you’re all set right? Many lenders deny first-time home lenders because they can’t prove that they are financially stable or able to control their monthly expenses. Outstanding debts, thrift spending, and an empty savings account will signal instability to a lender.
Beyond the $5000-$15000 required for a downpayment, homeowners should set aside a few thousand dollars for any unexpected costs and fees that are bound to occur during the transaction and their first year of purchase. Ask for a home warranty that will cover home repairs that homeowners insurance can’t cover. Unlike renting, you’ll have to pay for all of the utilities on top of a mortgage, insurance, and all of your other monthly debt. I think, most importantly, you don’t want to survive on a shoestring budget. You’re young so make sure you still have money for travel and all of the other hobbies you wish to pursue in your free time
Buy for Short-Term
I can’t stress this point enough: your first home should not be your dream home. This will come in your 30s or 40s when your asset sheet has a grown a little more and you have a more stable and high paying job.
Consider take out an HSA loan at a 3.5% down payment. Shoot for an adjustable rate mortgage so you can keep saving as much money as possible. Generally, you should stay in your first home for five to seven years to help you acquire your next mortgage and also settle your finances. The objective is not to start paying off a long-term mortgage, but to build up your assets and finances so you can afford a nicer home in the future.
Shoot for a Newer Home
A fix and flip home could be a good investment if you’re a real estate investor, but sometimes over improving a home to create value is a bad investment unless you’re a true handyman. I’d suggest buying a newer home that won’t require much maintenance, especially if you’re strapped for cash. These homes usually come equipped with modern appliances that can save you money on energy bills.
Purchasing a Home in Your 30s
As you begin to form a family and even seek to move somewhere else, this is the perfect time to start thinking about upgrading your home. If you’re a first time home buyer that’s even better because you should be better positioned financially to afford a long-term mortgage and sizeable downpayment. Approximately 35% of home buyers are first-time home buyers, at a median age of 32.
Now is he time to start thinking about signing up for a long-term loan at a low interest rate. Besure to compare mortgage rates to see which is best for your situation. Will this be the house where you retire or raise your family? Remember, you can always downgrade later on in life.
Location, Location, Location
In terms of a long-term investment, home value is often determined by location. For example, Austin real estate is much more expensive than purchasing a home in Garland, Texas because of the amenities, history, and culture Austin has become famous for. Home value will be driven up more by the surrounding school district, hospitals, and neighborhood than the actual house itself. Location is also important in considering where you want to raise your family and continue your profession.
Purchasing a Home in Your 40s
Once your family starts to leave the nest or you begin paying off mortgage loans, you have many options ahead of you to start making dividends off of your house and even increase your asset sheet.
Purchase More Property
Some homeowners end up purchasing a second house or a vacation house and renting it out to others to make some money on the side. The money you make from renting a home can be used to pay for itself. Approximately 60% of vacation homes are financed by a mortgage. The best part of owning a vacation home is having the freedom to stay and go as you please.
Depending on the state of your family and affairs, it might be a good idea to sell your home and get a cheaper, smaller home. According to Demand Institute, 37% of baby boomers plan to move again in their lifetime. A majority of them would prefer to downsize, rather than supersize. It makes sense; you save money on rent and the time it takes to maintain a large estate.
Pay off Mortgages
Finally, if you do purchase a new property than it’s keen to aim for a short-term loan. Pay off your mortgage as soon as possible so you can begin saving for retirement and have more money in your pocket at the end of the month.
While I recommend not shooting for your dream home immediately, this doesn’t mean you shouldn’t. Ultimately, you want to purchase a piece of property you can call home. While scary, home buying is your first step toward a new and exciting future. Congratulations on making this major decision!
Tags: Home Buy, Home, Mortgage, Finance, short term loan, Property purchase, mortgage loan