I've worked in the mortgage industry for over 20 years — here are the 3 best pieces of advice I can give you about buying your first home
• 51% of millennials plan to purchase a home in the next year.
• But the US housing supply is falling behind demand, making it harder for first-time buyers to enter the market.
• The process will be easier if find a good agent, save for unexpected costs, and get your credit in order ahead of time.
If you're selling your home this year, it's more likely than ever that you'll hand over the keys to a millennial.
According to a report from Ellie Mae released in April, millennials represent 45 percent of all purchase loans, making them the largest age group in home purchasing for the first time.
This is a noticeable shift for a generation previously known to prefer renting to homeownership. That said, there are a few roadblocks members of this generation will need to overcome before making the jump into a new home.
TD Bank's recent Mortgage Service Index indicates that 90 percent of millennial respondents feel now is a good time to buy a home, and 51 percent said they intend to purchase a home within the coming year. This consumer confidence is likely a result of the current low interest rates.
But there's a catch: Supply isn't meeting demand. Respondents in the Mortgage Service Index cited inventory as the most common issue that homebuyers faced during their purchase decision (28 percent). On top of that, almost all millennials in the real estate market are first-time homebuyers, meaning that their unfamiliarity with the homebuying process risks making these issues even more difficult to tackle.
Still, there's no need to be pessimistic. With a proper preparation and awareness of the right resources, homebuyers should feel ready to enter the housing market, regardless of age.
1. A good team makes for good results
Despite the short supply, there isn't a shortage of satisfaction. Seventy-five percent of Mortgage Service Index respondents said that their most recent homebuying experience was very good or excellent.
However, satisfaction with a new home is just as much about managing expectations as it is meeting them. Homebuyers should enlist the help of both a mortgage loan officer and a real estate agent. A loan officer can help set realistic expectations and identify the right products for an individual, so that they don't enter the buying process with an unrealistic vision of where their credit can take them.
Meanwhile, agents can help millennial buyers separate their needs – like being in a decent school district – from their wants – like granite countertops and hardwood floors.
Developing a good relationship with both of these sources before the homebuying process begins is an important step toward avoiding disappointment down the road.
2. Plan and save for the unexpected
The down payment is never the end-all, be-all. The Mortgage Service Index found that one-third of homeowners incurred between $2,000 and $5,000 in unexpected costs throughout the homebuying process, while an additional 10 percent incurred over $5,000.
Replacing appliances, paying for inspections and appraisals and other miscellaneous costs can add up very quickly. Buyers must do their research and develop a clear picture of how to get to the closing table, and what to expect when they arrive.
3. Leave nothing to the 11th hour
In a competitive market, the ability to act fast when one finds the home of their dreams is crucial. Before embarking on the homebuying process, buyers should be sure to consult with their lender and real estate agent to line up the necessary paperwork for mortgage preapproval.
Should there be interest in the home from more than one party, the most prepared will always have an edge. Those who have applied for a mortgage and are preapproved will have a more legitimate chance of having their offer accepted.
Buyers with past credit issues may sometimes wish to avoid difficult conversations about their credit score. But this is one area where ignorance is not bliss. Going into the homebuying process without this knowledge is a recipe for disaster.
Buyers should check their credit score through one of the three major bureaus and ensure they're in good standing before embarking on their homebuying journey. Avoiding large credit purchases that might raise an issue during the approval process is also a smart call.
Finally, first-time homebuyers may not be used to considering their spouse's finances alongside their own. Couples moving in together shouldn't let the old stigma of talking about money cause a rude awakening when they're negotiating a purchase.
Millennials are currently blessed with a relatively favorable market as they become homebuyers, a far cry from the dismal economic projections that their generation once feared. As long as they take the proper steps to stay informed and prepared, their first homes will surely be happy ones.
Ray Rodriguez is regional mortgage sales manager for Metro New York at TD Bank. He is responsible for training and developing the mortgage sales team and growing the market share within his region. Ray has over 21 years of experience in the mortgage banking industry.
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