5 steps you should take if you want to buy a home

NOT EASY, BUT WORTH­WHILE

The Times-Tribune - - FRONT PAGE - BY NATALIE CAMPISI BANKRATE.COM

Gen Z is poised to be the largest source of home­buy­ers in the United States. The post-mil­len­nial gen­er­a­tion, or those born af­ter 1996, make up about 32 per­cent of the pop­u­la­tion. And, ac­cord­ing to a re­cent re­port by Real­tor.com, 80 per­cent of them want to own a home be­fore they turn 30.

For kids who are still in high school or just grad­u­at­ing from col­lege, home­own­er­ship as­pi­ra­tions might seem far off. But the over­whelm­ing at­ti­tude to­ward home­own­er­ship could have roots in the eco­nomic turn­down their par­ents faced.

“Gen Z par­ents were Gen Xers and many Gen Xers went through the re­ces­sion. It could be that they saw what their par­ents faced and they have a dif­fer­ent take on own­ing a home,” says Danielle Hale, chief econ­o­mist at Real­tor.com.

The good news is that this gen­er­a­tion is grad­u­at­ing into a strong job mar­ket. The un­em­ploy­ment rate has stayed near the 4 per­cent mark for the last five months, while more than 300,000 jobs were added in Jan­uary.

The bad news is that wages for re­cent col­lege grad­u­ates are rel­a­tively flat, ac­cord­ing to a re­port by Korn Ferry. Re­searchers an­a­lyzed salaries of 310,000 en­try-level jobs in the US from al­most 1,000 or­ga­ni­za­tions. They found that 2018 col­lege grads would earn $50,390, a 2.8 per­cent hike from 2017.

For many Gen Zers, this mean pre­par­ing early to be­come home­own­ers at 31, which is the me­dian age of first-time home­buy­ers.

In 2031, the me­dian home price will be $386,310, ac­cord­ing to Real­tor.com. To save up for a 10 per­cent down pay­ment and closing costs, Gen Zers will have to save $304 ev­ery month for the next 12 years.

If they want to avoid pri­vate mort­gage in­sur­ance, or PMI, which can hike their monthly house pay­ment up by a few hun­dred dol­lars, they would need to save $608 per month, or a 20 per­cent down pay­ment.

1. Talk to a fi­nan­cial ad­viser

Col­lege grad­u­ates who have no ex­pe­ri­ence bud­get­ing their fi­nances would ben­e­fit from talk­ing to a fi­nan­cial ad­viser, says Michael Big­gica, founder of Pixel Fi­nan­cial Plan­ning in San Fran­cisco. Big­gica has worked with young pro­fes­sion­als who have no idea how to max­i­mize their sav­ings.

“I’ve talked to some young people and many seem to be rather ma­ture. The ones who would ben­e­fit from an ad­viser are usu­ally less con­fi­dent with their fi­nan­cial choices, there’s more credit card debt,” Big­gica says. “I think one of the big­gest ben­e­fits of a fi­nan­cial ad­viser for Gen Zers is to un­der­stand bud­get strat­egy — where do I put that ex­tra dol­lar?”

Bud­get ba­sics be­gin with cre­at­ing an emer­gency fund be­fore sav­ing for a house, Big­gica says.

2. Get rid of credit card debt

Gen Zers who have started to ac­crue credit card debt should pay off the debt now, keep the credit cards and build strong fi­nan­cial habits, says Gary Boyer, se­nior mort­gage spe­cial­ist at Directors Mort­gage in Port­land, OR.

A strong credit score will help bor­row­ers get the most com­pet­i­tive in­ter­est rate and shave thou­sands off of their loan.

3. Take ad­van­tage of free money

Don’t leave cash on the ta­ble, Big­gica says. Young bor­row­ers should talk to their em­ploy­ers about home­own­er­ship pro­grams as well as re­search pro­grams of­fered by both the fed­eral and lo­cal govern­ment. Don’t for­get to look into FHA loans and VA loans.

Boyer echoes that ad­vice say­ing that many em­ploy­ers do of­fer home­buy­ing pro­grams, but don’t al­ways do a great job of com­mu­ni­cat­ing them to their em­ploy­ees.

4. Save it like you’re al­ready spend­ing it

For aspir­ing home­own­ers who have the lux­ury of liv­ing with their par­ents or can af­ford to de­vote a big chunk of their in­come to sav­ings, use that op­por­tu­nity to sock as much money away as pos­si­ble, says Boyer.

“I en­cour­age people to live like you al­ready have that pay­ment. If I’m go­ing to have a $2,000 monthly house pay­ment, then I’m go­ing to put that money away. I think it’s smart for young people to get used to those pay­ments if they want to own a home. I also en­cour­age them to put the money into a sep­a­rate ac­count so they don’t see it,” Boyer says.

5. Be smart about where you save your money

An enor­mous ben­e­fit of tech­nol­ogy is that savers can shop around for the best in­ter­est rates with­out leav­ing their house. The worst thing people can do is as­sume that big banks of­fer the best deals, says Big­gica, point­ing to on­line banks as a vi­able al­ter­na­tive.

“A lot of times I see people that have their money in sav­ings and it’s grow­ing at .2 per­cent. That 22-year-old might be at a Bank of Amer­ica and they aren’t tak­ing ad­van­tage of the full range of what Bank of Amer­ica can of­fer. They can get a bet­ter deal at an on­line bank,” Big­gica says.

For long-term goals, some Gen Zers might con­sider a hy­brid blend of stocks and bonds, which are more ag­gres­sive sav­ings ve­hi­cles. In or­der to go this route, savers should talk to a fi­nan­cial ad­viser who can help them in­vest their cash as well as de­tail the risks in­volved.

Although sav­ing for a 10 or 20 per­cent down pay­ment is an ex­cel­lent goal, the av­er­age down pay­ment is 7 per­cent for home­buy­ers un­der 30, Hale points out.

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