Home Buying Tips for Black Millennials
In 2020 the African Americans buying homes were Black Millennials. Black adults between the ages of 26 and 39 helped spark a nationwide increase in the overall homeownership rate for African Americans.
According to a November 2020 National Association of Realtors analysis, 5 percent of Americans who bought homes during the first three quarters of 2020 were Black.
“Millennials should absolutely buy homes. Real estate is one of the most powerful ways to build wealth,” says Tyler Forte, founder and CEO of a Nashville-based real estate brokerage called Felix Homes. “Not only are lending standards pretty flexible but interest rates are at a historic low. There are also many first-time homebuyer incentives that millennials can take advantage of such as an FHA loan which would allow them to put down just 3.5 percent.”
Still, buying a home can be complicated. Here are tips from experts for millennial homebuyers.
Get to understand how mortgages work. “To qualify for a mortgage, aim to make a minimum downpayment of 20 percent or higher if you can. Some lenders allow you to pay as little as 3 percent but that leads to higher costs down the line; this is known as private mortgage insurance (PMI), a secondary loan on your mortgage,” explains Brian Meiggs, founder of personal finance website www. mymillennialguide .com . “The idea is that being unable to afford a large down payment, you may default on your mortgage as a first-time home buyer, therefore the need for private mortgage insurance. “
Work that credit score
Get your credit score and your finances up to snuff. They’re going to be looked at and will determine your eligibility for a home loan.
“For millennial homebuyers is before you get pre-approved for a mortgage to buy a home, work on your finances for at least six months. Even if you have a stellar credit score, most lenders really care about debt-to-income ratio,” Forte reported. “Be disciplined with your spending by creating a monthly budget. Then, use the money you saved to pay down your highest interest debt such as credit card loans or car payments.”
Save & Budget
It’s a good idea to start saving — and saving early. “Develop a budget to pay off debt to increase your chances of qualifying for a mortgage. Student debt loans and credit card payments can be a hindrance if not actively managed. Work on a payment plan for any accrued debt you might have and make timely payments,” advises Meiggs.
Do your “home”work
Don’t just jump into homebuying blind. Do your research. “Take time to study the market, have patience and use a real estate agent. They have a wealth of knowledge and experience that can’t be picked from the internet. They’ll use their resources to find the best deals available and act on your behalf with sellers while also advising you on property valuation. Be sure to sign a buyer’s broker agreement and an agency agreement before you begin,” says Meiggs.
Don’t go it alone. Buying a house is a long-term investment — and a costly one. So it’s a good idea to get professional help.
“Working with an experienced real estate agent that knows the local market can give you an edge when determining where to buy a home. Ask the agent where the fastest-growing part of a city or town is located and if any commercial projects are currently under construction that would forecast significant growth For example, it sounds a bit strange but purchasing a home near a new Whole Foods location typically means you are in a high-growth part of town,” Forte points out.
Don’t Skip Home Inspection
“Never skip the home inspection. This goes hand in hand with the biggest mistake millennial homebuyers should avoid. 2020 was such a competitive housing market that many buyers decided to remove their inspection contingency. Don’t let this happen to you no matter how badly you want the home,” says Forte. “A professional inspection is the only way to find out what is lurking behind the walls and a problem with the foundation or roof could easily cost you a lot of time, money, and frustration.”
Try The Personal Touch
In a competitive market, adding a personal touch to your bid might just help you get the house of your dreams.
“Write a personal and compelling letter to include with your offer. Purchasing a home can be very daunting in a very hot seller’s market, and this is where you have to think outside of the box. Real estate is not just about offers and numbers, it is about people,” suggests full-time real estate investor and developer Jonathan Faccone, Managing Member of HaloHomebuyers, a Bridgewater, New Jersey-based real estate home buying company.
He adds, “As a millennial buyer, it is so important to make your offer stand out from the rest, and the best way to do this is to write a personal letter introducing your family to the sellers. As a seller, it is much harder to turn down a buyer with whom they feel personally connected, especially if they are a younger first-time buyer.”
Don’t rush the process. Hurrying to buy a home can result in a costly mistake. Take your time and be patient.
“Buying a first home is a very exciting yet stressful time. Many times there are a lot of misconceptions surrounding the experience of buying a home, propagated by television shows that tend to show more of the dreamier moments than the headaches,” notes Faccone. “The reality is that home buying is a process and it is important to set the right expectations and be patient especially in this market. You do have to be prepared to make quick decisions, but you need to be patient and prepared to make unemotional and prudent decisions.”
“Purchase term-life insurance. When you buy a house, you take on a lot of financial risk and you don’t want to pass this on to family, especially if you’re buying it with a partner or spouse,” advises nationally-recognized consumer finance expert Andrea Woroch.
She explains, “A term life insurance policy can help pay the monthly bills if something happens to you and protect your family’s financial future. Companies like Bestow can ensure you leave up to $1 million in term-life insurance to your partner or kids or even parents so they aren’t saddled with your debt or struggling to pay the monthly mortgage or household utilities, and it can cost less than an order of take-out pizza. According to the site, a healthy 35-year-old woman who purchases a $500,000 term life insurance policy will pay just $23 a month.”
Home Buying Mistakes to Avoid
1. Not taking into account the cost of owning a home. “Buying a home is one thing, but the costs that come with the purchase, like homeowners insurance, closing costs, property taxes, utilities, and maintenance costs, are often overlooked; coupled with making monthly mortgage payments, it can be a costly endeavor. I’d advise millennials to keep saving beyond the cost of buying a home to account for expenses that come with owning a home,” Meiggs suggests.
2. Not keeping your budget in mind. “Many people shop for the priciest house they can afford or that they can approve for. However, sticking with a smaller house in the outskirts of town can keep your monthly payment lower so you have more money to enjoy hobbies and travel as well as other financial goals or investments,” Woroch says.
3. Not putting down enough money. “Though first-time homebuyers can get away with a lower down payment, this will result in thousands of dollars lost in interest. Save up at least 20 percent for the down payment,” stresses Woroch.
4. Not shopping around for a lender or comparing rates. Just like you comparison shop for a large screen TV or a new car, shop around for lenders and always compare rates which can vary by up to 1 percent point. This can save you a ton in interest,” offers Woroch.