5 Homebuying Tips Millennials Need to Know
With the continued rise in the cost of education, housing prices as well as general cost of living, purchasing a home may seem out of reach for many millennials. However, with some simple short-term lifestyle tweaks, purchasing your first home is within your reach. Chris Woodard shares 5 simple homebuying tips millennials need to know. Enjoy!
Millennials often get a bad rap for “destroying” industries and the housing market is no exception. A lot of pundits on the internet talk about how the millennial generation is the biggest contributor to the decline of the housing industry. In fact, a common stereotype for millennials as described in these articles is that they would rather buy avocado toast and pumpkin spice latte than save up to buy a house.
It is not that millennials don’t want to buy a house. Bank of America’s 2018 Homebuyers Insight Report found that 72% of millennials consider being able to own a home a top priority. Homeownership ranked higher than traveling (61%), getting married (50%), or having children (40%.
Millennials are indeed affecting the housing market but not because they don’t want to have a home. Rather, it is because of a different perspective compared to the older Boomer generation and multiple structural factors that steer them away from homeownership. For example, millennials put off settling down and having kids. Student loan debts and high rent prices also take a huge chunk out of millennial income, which keeps them from having the money to pay for a home.
While the odds are stacked against the millennial generation, there are steps that you can take to be able to be one step closer to your dream home. Here are 5 ways to save up for a house down payment.
1. Pay off your high-interest debts.
For millennials, the biggest hurdle to buying a home is student loan debt. According to the Federal Reserve, the average amount of student loan debt in the country is $32,731. Combined with stagnating wages and the rising cost of living, student loan debt is a huge burden that drives millennials to delay a home purchase.
In order to save up for a house down payment, you first need to address your student loan debt. Debt accrues interest and these payments can add up more than you think. Paying your debts first, opens up financing opportunities that can help you purchase a home. You don’t need to be completely debt-free to buy a home but paying off your debts can boost your credit score and increases your likelihood of getting approved as a homebuyer.
One way to do that might be to consider a lower rate personal loan. There are a number of providers, and lenders like Zippyloan allow you to apply online. Consolidating debt and making single low interest payments can help.
2. Set up an automatic transfer to your savings.
When you are just starting out, it is important to have a personal bank account that is specifically and strictly for your savings. But that’s just the first step. The next thing you need to do is to set up an automatic transfer on your payday to redirect part of your take-home pay to your savings. This way, it is less tempting to spend the money, and once you get used to it, you won’t even think about this portion of your income anymore. Self-control is key when saving up money. Remember: every dollar, counts.
3. Find a more affordable place to live while saving.
According to a 2018 study by Rentcafe, millennials spend around 45% of their income on rent, amounting to a total of $92,600 by the time they turn 30. If your goal is to save up for your future home purchase, then you should consider trimming down your rent expense.
Is it possible to find a more affordable place to live while saving? Try to shop around in your area if there’s any and save the difference in rent every month. Alternatively, you can try to find a roommate to share expenses with and cut down your rent expense in half.
4. Consider selling or downsizing your car.
Car payments and maintenance are other money hogs that take a huge cut from your income. Fuel and insurance payments every month adds up to a huge amount of money that you can otherwise add to your savings. That said, transportation is still a huge need especially if you commute to work. However, there are several things you can do to reduce your car-related expenses.
Selling your car and using other types of transportation such as cycling, ride-sharing services, and public transportation will yield the highest amount of savings for you. But if you really need to have a car, then consider downsizing to a smaller vehicle that is more fuel-efficient and has lower insurance payments. Use your car less to save on fuel expenses.
5. Look for another source of income
Reaching a goal often entails sacrifice and saving up for a home is no different. Downsizing parts of your life and reducing your expenses help in reaching your homeownership goal. In addition, getting another source of income can significantly help fund your down payment faster.
Thanks to the internet, it is easier to find a variety of side gigs to earn extra cash. If you have the skill set to do some type of tutoring or consulting, for example, look for part-time jobs and offer your services. If you are good at writing or designing or you have a background in programming, then becoming a freelancer is good for you.
Saving up for a home purchase seems daunting at first. Structural factors and the general state of the economy make the deck stack against millennials. But when you reassess your lifestyle, trim down what needs to be trimmed, and stay committed to homeownership, you’ll realize that it is doable. Challenge yourself with your budget and live within your means. You’ll find yourself closer to getting that dream home. Good luck!
About the Author:
Chris Woodard is the Co-Founder of Handle.com, where they build software that helps contractors, subcontractors, and material suppliers with late payments. Handle.com also provides funding for construction businesses in the form of invoice factoring, material supply trade credit, and mechanics lien purchasing.