Everyone’s buzzing about this generation of home buyers! The real estate world has been waiting for the millennial generation, which will pass the baby boomer generation as the largest home buying group this year, to start purchasing homes. Due to the recession and incredibly high amounts of student debt, millennials have been holding off on starting families and buying houses. Not that one is required for the other, but the trend tends to work together, as the past several years have seen an increased number of single millennial renters instead of home purchasing families.
However, a report by Bloomberg revealed that the continuous rise in the cost of renting is pushing millennials, single or not, into the real estate market.
Stats show the millennial generation has been increasingly demonstrating their homebuying interest. Last year, millennials made up 32 percent of the housing market, a 28 percent increase from 2012. Though this increase is happening slower than many real estate professionals would like, this year could see a big change, with about 5.2 million renters expressing interest to buy, Bloomberg reported, citing Zillow Housing Confidence Index data.
Not so fast...Though this change is a positive one for the housing market, most of these buyers are first-timers, which means there is great potential for human error. When it comes to purchasing a new home, or any piece of real estate, there are common mistakes that can be easily avoided, yet most millennials might not be aware of them.
If you are a millennial and purchasing a home for the first time this year, be mindful of these three common mistakes:
1. Not knowing closing costs
Two-thirds of millennials aren't aware of closing costs when they purchase their first home, according to a survey conducted by the ClosingCorp of San Diego, the Central Valley Business Times reported. Closing costs are paid at the close of a real estate transaction. They are typically 2 to 5 percent of the total purchase cost.
"This study is very interesting in that it shows millennials are more dependent on Realtors than previously presumed," said Brian Benson, CEO of ClosingCorp. "We know they are more tech-savvy than their predecessors, so we believe this really highlights the complexity of a residential real estate transaction."
If you are unsure about how to go about preparing for closing costs, speak with your escrow agent. It's best to have that money set aside so you are prepared for the day you close on the house.
“The best thing a first time homebuyer can do is attend one of the many classes offered in their community and educate themselves on the whole process, including Title and Escrow Costs, Inspections fees, and Appraisals,” according to NexTitle Escrow Officer Valeria Telesco. “Most classes have a professional from each step of the process and the Escrow Officer will know the most—after all, it’s the Escrow Officers who teach the real estate agents! You can ask your real estate agent or your loan officer for details on local classes available. Go check them out!”
2. Having too much for the down payment
The economy is in a good place and continuously getting better, as employment increases, gas prices are low and consumer confidence is high, but that doesn't mean you should put all of your savings into a down payment. According to Danielle Kubes in a special report for the Financial Post, millennials have a bad habit of putting too much into a down payment in an attempt to get ahead of the game. This is not a smart idea, as it doesn't allow you to prepare for emergencies that could arise. Just because things are going well right now doesn't mean catastrophes or life changes don't come up. Embrace the Boy Scout motto and Be Prepared!
3. Not working with a real estate agent
Millennials typically resort to Web or mobile-based methods of searching for a house, and don't put enough faith in using a real estate agent. According to Khani & Auerback Law Offices, having an agent in your corner will work to your advantage in everything aspect, from being more cost-aware to having successful negotiations. Either check reviews online, or get referrals from friends and family members. Either way, if you are purchasing a home for the first time, don't do it alone. Though you might think you can have a successful experience relying solely on an app service or simply doing your own research, this is not the case.
Let a professional work on your behalf so you can get everything you want in terms of location, price and overall convenience in the process. Real estate agents do this for a living and will be able to show you how it's done. You will also be more confident as you go through the process, knowing you have a professional's experience on your side. Work with an agent so you don't miss any details.
As the tide shifts in the housing market and more millennials start making home purchases for the first time, there are going to be many mistakes along the way. However, the millennial generation typically does more research and asks more questions than previous generations, mostly due the fact that they are utilizing technology more often and seeking information all the time.
If you are a millennial and switching from renting to buying this year, pay attention to the mistakes listed here, but also seek out a real estate agent and work together. It is important to note that as more millennials step into the market, it is going to become increasingly competitive. Don't compete on your own!