NEW YORK (MainStreet) Your friends are blowing their money at the bar or on tattoos, expensive clothes or a car they can't really afford. You? You're the responsible one. The one who's socking away money to buy a house, even though you're just shy of your twenty-fifth birthday. You've read about how it beats renting. Still, you find the prospect daunting: how are you going to get a loan? How are you going to afford the down payment? What kind of house does a young, single professional such as yourself need?
The good news: It's a lot easier for young people to get into a home that might not be the house of their dreams, but that's a good first step on the road.
The Biggest Problem You'll Face Buying a Home
Richard Bridges, an Associate Broker with ERA Blue Diamond Realty in Woodbridge, Va., thinks the biggest hurdle is also the easiest to overcome.
"The lack of education toward the home buying process is the biggest obstacle," he says. There are a lot of misconceptions when it comes to buying a home, particularly with young, first-time home buyers.
President of Shore Mortgage David Hall agrees.
"Most people think they're going to need way more money than you actually do," he explains. "The days of zero down are obviously gone, but you can still get down payments as low as 3%."
Plan for All Costs
Hall is quick to point out, however, that most young people fail to account for all the costs of buying a home.
"They don't budget for furnishing and other costs like power, electric and water," he says.
TJ Rubin, owner and managing broker of Fulton Grace Realty in Chicago, concurs.
"In Chicago condos are very popular," he says, adding that buyers should also keep the cost of home inspection in mind.
Still, some costs that might intimidate younger home buyers out of the market are much ado about nothing. Rubin notes that costs such as title, lender and attorney fees are typically paid out of closing. Your mortgage broker can help you to budget for those once you begin the process.
One thing that all of our experts agreed on: first-time home buyers in particular need someone to help guide them through the process.
"Working with someone who has been referred to you is always your best bet," says Bridges, who is currently working on a book about how to hire the right mortgage broker. Beyond that, some questions he thinks people should ask potential brokers include:
- Do you work with any lenders who have programs that will benefit me?
- What type of experience do you have with people in my demographic?
- How many people have you sold homes to in similar situations to mine?
- How experienced are you in the location I'm looking to buy?
- Do you know what the commute will be like between where I want to live and where I work?
The point, to Bridges, is that you need to have an interview process where your concerns are addressed. He recommends meeting at a third-party location like Starbucks or Panera and going over your questions and concerns.
Hall recommends going with a consultative lender, but the underlying principle is the same: get someone who knows the process well to guide you through it.
Program for Young, First-Time Home Buyers
Of course, you're probably interested in what programs there are out there that can get you in the right home. Some are available at the state level. For example, Bridges points out that the Virginia Housing Development Authority has a program that will help you come up with the 3.5% the Federal Housing Authority wants for its subsidized loans. This is a program specifically for first-time home buyers. Again, you should speak to your mortgage broker about what state and federal plans will help someone of your income, age and credit rating get into the right home.
Don't just look to Uncle Sam to help out. Talk to the company you work for to see if there's anything they can do to get you into a home of your own.
The Perks of Being a Homeowner
Once you get past the idea that you need to come up with a lot of money up front, becoming a homeowner becomes much more attractive.
Hall advises clients that your mortgage will likely be 20% less than renting a comparable property. What's more, you're building your credit rating and getting equity. For some recent grads, it might make sense to try and get your parents to set you up in a condo as a graduation present. Talk to your advisor about how much of your down payment can be gifted.
It's important, according to Bridges, to look for a nice home, but also a smart investment. "Your first home is probably not the one you're going to live in for the rest of your life," he says, "So it should be something that will have a good resale value."
No matter how you slice it, you're always paying someone's mortgage. It might as well be your own.
--Written by Nicholas Pell for MainStreet