What Millennials Need To Know Prior To Entering The Housing Market

Revealed: What Millennials Need To Know Prior To Entering The Housing Market- 6 Questions You Need To Answer

For most millennials, the decision or realization that it is time to move to a new home is often the easy part. The difficulty arises when faced with the choice of whether to rent or buy a home. For young aspiring homeowners, there are several relevant factors to keep in mind during this season, such as rising rental rates and historically low interest rates (although this are predicted to rise). Past today’s ripe real estate environment, first-time home buyers are renowned for being motivated by emotion and aspiration, driven to buy a home so that they can finally have a place to finally call their own or somewhere where the kids can run around in. Basically, each person has their own unique set of pros and cons to take into account.

Before committing to any mortgage or lease, millennials should carefully weigh a number of factors because with the cost of living expected to continue to rise, they must be prepared to handle the rigors of their housing choice- whether home ownership or a rental property. So as you mull over this decision, here are 6 questions you must answer and which will help you decide whether to buy or rent in the housing market as follows:

1. How much have you saved?
Begin by evaluating your financial health. You can do this by establishing how much money you need for deposit on a rental or making a down payment. The latter typically ranges between 5% and 20% of the price of the home. Rental security deposits are usually about one or two months of rent, and more if you keep pets. Just remember to keep enough savings for an emergency or any unexpected costs.

2. How much do you owe?
Consider all of your expected and current financial obligations e.g. your student loans, credit card debt, and car payment and insurance. Ensure that you will still be able to meet these obligations in addition to the cost of your new home. Try and keep your total mortgage or rent payments plus utilities to less than 30% of your gross monthly income in line with recent regulatory changes limiting debt to income (DTI) ratio on most mortgage loans to 43%.

3. How long do you intend on staying?
Generally, the longer you intend to stay somewhere, the more sense it makes to buy a home in that area. In fact, over time, you are likely to build equity in your home. Conversely, renters have fewer maintenance costs and greater flexibility to move. Therefore, carefully consider your work and life situation and think about how long you want to stay in a particular area before committing to buying a home.

4. How does your credit score read?
Since both home buyers and renters can expect to have their credit history examined, the importance of credit scores cannot be emphasized enough. High credit scores indicate strong creditworthiness while low credit scores can keep you from qualifying for a low interest rate on your mortgage or a rental you want. If your credit scores are low, you may want to delay the decision to move into a new home and take the requisite steps to raise your scores.

5. Have you considered all the costs?
Before moving into your new home, create a hypothetical budget- find the average cost of utilities in your neighborhood; factor in cable, water, electricity, and gas; and find out if you will have to pay for trash pickup or parking. If you plan on buying a home, factor in mortgage insurance, real estate taxes, and possibly a homeowners’ association fee. Renters should also consider rental insurance costs.

6. Where do you plan on staying?
Location, location, location is, undoubtedly, the adage most familiar to those interested in buying a home, but renters also need to factor in transportation costs into deciding where to live. Studies reveal that for every dollar that you save on housing in an area that is more affordable, you spend 77 cents more in transportation costs. It is thus important to carefully think about your daily commute and how much income will be required to meet both transportation and housing costs.