Many Millennials are looking to purchase their first home this spring. They are scouring the websites and driving through neighborhoods looking for what will probably be their largest purchase to date.
They enter the housing market with great excitement. They cannot wait to post a picture of their first home on Facebook.
The purchase of one’s first home should be an enjoyable and memorable experience. But the lack of homebuying experience can make Millennials vulnerable to some common and avoidable mistakes.
If you are Millennial, here are a few mistakes to watch out for:
- Having unrealistic expectations. Television and social media can warp a Millennilal’s expectation in regards to the type of home they should be able to purchase. Often, first-time, Millennial homebuyers start looking for their dream home instead of their first home. Most of the time, the two are not the same. Unrealistic homebuying expectations almost guarantees budget-maximization, dissatisfaction, or both.
- Trying to shop and purchase without a realtor. The Internet provides a great amount of information when purchasing a home. Buyers should leverage it as much as possible. But these resources can lead some Millennials to believe that they can go through the purchasing process alone. This is a mistake. The process is more complex than many new homebuyers realize. A professional realtor assists the buyer with all facets of the process—from finding to negotiating to closing.
- Maxing out the mortgage preapproval amount. It is wrong to view a bank’s preapproval number and the amount you should spend. This is your maximum that the bank is willing to give. Most of the time, your limit should be lower. Maxing out the limit can make you house poor (barely able to afford anything beyond your home costs).
- Not putting 20% down. This helps you avoid private mortgage insurance (PMI). You can find out more of my thoughts on PMI here.
- Not considering closing costs. Closing costs are in addition to the purchase amount. And they often range from 2% to 5%. Depending on the purchase price, this could be a good chunk of money.
- Underestimating home improvement costs. Home improvement shows make it seem like you can take any dilapidated home and transform it into the home of your dreams. Before you purchase a home in need of some TLC, get estimates for all improvements. And tack on some additional money because we all know that something will not go as expected. Make sure you can actually afford the fixer upper.
- Not considering resale. Speaking of home improvements. Only do improvements that add value to your home. More than likely, your first home will not be your only home. You will move. You will sell your house. So make sure your improvements create an increase in value.
The first time you purchase a home can be an exciting moment. If you are a Millennial and searching for a home this spring, don’t let your excitement cause you to make some common mistakes.