Are You Prepared to Buy Your First Home?
By M.Alex Burns on September 5, 2024
In today’s fast-paced world, young professionals face a unique set of challenges when it comes to buying a home and establishing roots. Balancing student loans, rising living costs, and the pressure to save for the future can make homeownership seem like a distant dream. However, with the right guidance, this milestone is more attainable than you might think. Working with your advisory team can provide the strategic insight needed to turn this goal into reality, helping you navigate the complexities of the real estate world while ensuring your long-term financial plan is not adversely affected.
Young adults’ attitudes toward homeownership doesn’t appear to have changed much over time: For example, 95% of 18–25-year-olds surveyed believe homeownership is something to be proud of, and 90% believe it’s a sign of success.[i]
If you are nearing the point at which you want to buy a home, how do you know if it’s a move you can afford to make? It is important to ensure that you’re not overextending yourself financially or overlooking important factors like property taxes, insurance, and ongoing maintenance and update costs. This proactive planning not only increases your chances of securing a home that fits your needs but also helps to ensure you do not run into cash flow issues in the short term. While navigating this important discussion some important steps to take are discussed below:
Step One: Review Your Credit Ratings
Whether you rent or buy, the time to build good credit is now. Prospective landlords and lenders alike look at this information as an indicator of whether you can make your payments, and your credit rating has a direct impact on what mortgage interest rate you qualify for.
Step Two: Understand the Full Costs of Homeownership
In addition to qualitative factors, there are many costs to consider when deciding whether to rent or buy; both upfront costs and ongoing costs. An example of some upfront costs includes the down payment, closing fees and renovations. Examples of ongoing costs include mortgage payments, property taxes, insurance, homeowners’ association fees and utilities.
Step Three: Determine How Much You Can Afford
The home price you can afford will depend on many factors including the type of loan you take out, the loans interest rate, how much you can pay monthly and the size of your downpayment. A down payment will typically range anywhere from 5-20% of the purchase price and interest rates fluctuate relative to the overall lending market.
Step 4: Get Help from a Human
There is little doubt: The mortgage process and affordability question can be confusing. Online advice and tools can help but can also be overwhelming and difficult to synthesize into actionable next steps.
Consult with someone who is knowledgeable, unbiased and has your best interests at heart. This may be a parent, your parent’s financial advisor or your own financial advisor. They can assist in creating a tailored savings plan, analyzing mortgage options, and preparing for unexpected expenses that come with homeownership. By taking a holistic approach to your finances, an advisor helps ensure that your decision to buy a home fits seamlessly into your broader life plan, rather than becoming a source of financial strain.
While the dream of homeownership is important, it’s essential to ensure that you’re financially ready. Being patient, taking the right steps and waiting until you’re in a stable financial position can help to ensure that your first or next home is a true investment in your future.
In a competitive real estate market, the guidance from your advisory team can empower young professionals to make informed decisions, helping to transform the daunting process of buying a home into a manageable, rewarding journey. By taking this step, you’re not just purchasing a property; you’re investing in a home where you can truly put down roots and thrive.
Thinking of buying a home? Reach out to the Synergy team who are ready to help.
[i] Freddie Mac, Generation Z Study, 2022, www.freddiemac.com/research/pdf/Freddie_Mac_Survey_of_Gen_Z_FINAL_PR.pdf. Accessed January 26, 2023.
