The Commonwealth Blog
Buying a home is difficult at any stage of your life—but millennial home buyers are going through some of the biggest challenges of any generation yet. Home values in many markets have skyrocketed, wages have stagnated, and many millennials don’t have adequate education about personal finance. These young professionals are often purchasing their first homes and may be relatively recent college graduates.
Without proper education and sufficient income to purchase a house, it’s easy to make simple mistakes in the home buying process. Below are some of the most common mistakes millennial home buyers make. Regardless of what generation you consider yourself from, you can avoid these pitfalls and follow this advice in your home search.
Mistake #1: Not Getting Pre-Approved Before Shopping
In today’s instant gratification culture, we often decide what we want before knowing what we can afford. When planning for what will almost certainly be the largest purchase of your life, making sure you can afford it first is paramount. Meeting with a lender beforehand, either online or in person, will help you determine what loan amount and type you can get and what your monthly payments will be. A discussion of your financial situation with your creditor (and partner, if applicable) will help solidify what makes sense for you in a home and will get you a pre-approval letter, which tells sellers how much money you’re potentially qualified to borrow.
How to Fix It: Get pre-approved before you begin shopping so you know what you can afford and have a mortgage pre-approval to show the seller when making an offer.
Mistake #2: Putting Every Cent You Have into Your Down Payment
You’ve probably been saving up for a while for your home, making sacrifices for the eventual goal of buying this first home. But that doesn’t mean you should put all the money you’ve saved into your down payment. While it’s ideal to put 20% down on your home, having money for emergencies can be more important. Whether your car breaks down, you get divorced, or you lose a job, having money in an emergency fund rather than all tied up in your house is essential.
How to Fix It: Save some of your money in an emergency fund. 6-12 months of living expenses should be enough to take care of most situations. Make sure your mortgage payment is affordable even if you lose some of your income—don’t stretch yourself to your financial limit.
Mistake #3: Not Working with a Licensed Realtor (DIY Property Hunting)
Many millennials think they can do their home searches by themselves—hopping on the MLS or sites like Zillow and then contacting the agent listed. This person is the listing agent, who works for the seller, not for you. You won’t have a Realtor working on your side for negotiations, helping you save money and purchase the best home. While you don’t have to give up doing home searches, hiring a licensed Realtor can streamline the home buying process.
How to Fix It: No matter how independent you are, hire a licensed Realtor to help in your search. They’ll be working to support your best interests, and they have experience in the home buying process.
Mistake #4: Missing Your Home Inspection
One of the biggest mistakes anyone makes when purchasing a home is skipping their home inspection. A home inspection is especially important in Massachusetts, a “beware buyer” state where buyers assume the risk that properties may have defects. It’s up to you to determine if the house you plan to buy has problems such as a leaky roof or cracks in the foundation. A home inspection will help you find out what, if anything, is wrong with the home before the sale. You can then go back to the seller and negotiate any repairs. Whether it’s issues with appliances, the foundation, or the roof, the items that come up during the home inspection are integral to your decision to purchase a home.
How to Fix It: If possible, vet and choose the home inspector and be there personally during the inspection. Go over the home inspection report with your Realtor and determine how to proceed.
Mistake #5: Overspending on Your Home
It’s tempting to think that whatever loan amount the bank qualified you for is what you should spend on your home. This maximum amount that you can spend is likely not what your budget should be. In addition to the common expenses associated with a home, like insurance, utilities, etc., you are also now responsible for all repairs to the home. When drawing up the budget for your home, consider all expenses and emergencies that may come up.
How to Fix It: Carefully go over your budget with your partner and Realtor to determine a realistic price range for your new home—regardless of how much the bank pre-approves you to borrow.