Purchasing a home is one of the most significant financial commitments a person can make — and one of the most stressful. Buyers need to put down cash savings, commit to an up to 30 years payment plan and juggle communications with realtors, buyers and sellers all while navigating a plethora of government regulations.
According to a recent survey conducted by GOBankingRates, older Gen Zers and young millennials make up the age group experiencing the most confusion regarding this financial task. The survey found that 26% of young Americans (ages 25-34) are puzzled by the homebuying system.
Young Millennials Are More Confused by Homebuying Than Any Other Generation
According to GOBankingRates’ survey, 18% of Americans find buying a home to be the major financial task that is most confusing to them.
However, homebuying concerns are disproportionately affecting young adults new to the homebuying scene. Twenty-four percent of the respondents in this category are older members of Gen Z and young millennials, ages 25-34. Older generations — who are more likely to be homeowners already — feel less confusion about this financial task.
According to the survey, only 18% of Americans on the millennial and Gen X cusp (ages 35-44) and 19% of Gen Xers (ages 45-54) find this financial task the most confusing. The perplexity of homebuying continues to dwindle with age as a mere 8% of Americans ages 55 to 64 find this task to be the most confusing. Boomers over 65 are also more likely to understand homebuying with only 9% of this group finding this financial task most confusing.
Millennials are likely struggling to wrap their minds around homebuying for multiple reasons, including a lack of financial literacy surrounding this topic and experience. However, it’s not too late to learn the basics. Here is a simple guide from the experts on how to understand homebuying for younger generations used to renting.
A Guide To Homebuying for Millennials
When it comes to buying a home during your mid-twenties to early thirties, it can be easy to look at the high mortgage numbers and complicated buying process and run in the other direction. However, taking the time to build your financial literacy and invest in a home can be a majorly beneficial financial move in the long run. While renting might be easier, you won’t be able to get your money back like you can through home buying.
Determine What Payments You Can Afford
When it comes to home buying, the first and most important step is to figure out your budget.
“Start with your monthly cash flow,” said Kendall Meade, certified financial planner at SoFi. “Understand your current expenses and figure out the monthly payment that would still allow you to accomplish other goals. Make sure that monthly payment includes insurance, property taxes, utilities and miscellaneous expenses. From there you can back into how much house you can actually afford.”
Don’t Let Costs Surprise You
You’ll want to avoid being the unprepared first-time homebuyer. In order to not be surprised by extra costs, remember to not only budget for the down payment but also factor in the many other expenses that come along with home buying.
“Closing costs can be anywhere between 3-5% of the purchase price and there are other expenses that are not included in closing costs, such as inspections, which will need to be paid for out of pocket,” Meade said. “Saving an additional 1% of the purchase price can help you prepare to pay these costs.”
Get Preapproved for a Mortgage
After you determine what you can afford, it’s crucial to get preapproved for a mortgage so you have a better chance of attaining the home you want.
“You will consult with a lender, providing them your financial information (income, credit score, taxes, pay stubs) and the lender will then advise what your borrowing potential/purchase power is,” said Nicole Beauchamp, licensed associate real estate broker at Engel & Völkers. “Doing this will help you to know what you could afford and put you in the best position during the bidding and offer process, (particularly in markets with tight inventory and multiple offers, you want to give all indications that you are a ready, willing and able purchaser).”
Find an Agent
Buying a home is no easy feat and you’re going to want someone in your corner to help you navigate the complicated process and help you protect your finances from fraud. That’s where finding a realtor you like comes into play.
“Ask friends for referrals/recommendations, ask your mortgage professional and do your initial searching online as well,” Beauchamp said. “Research the reviews and sales history of our potential agents, and schedule time to interview agents to find who is the best fit based on expertise, experience and personality (not all people match well together).”
Don’t Deplete Your Emergency Fund
While it’s easy to get caught up in the complicated financials of homebuying, it’s important to avoid sacrificing your financial well-being for a home. Remember, buying the house is only the first step and there are often unexpected expenses that come after, so you’ll want to be prepared for what might happen.
“Emergencies can happen at any time and an emergency fund becomes even more important when you are a homeowner as you can run into emergencies such as water leaks, appliances that have to be replaced, HVAC units, other repairs and more,” Meade said. “Without an emergency fund, an unexpected event such as this could cause you to rack up high-interest-rate debt.”
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Methodology: GOBankingRates surveyed 1,056 Americans aged 18 and older from across the country on between March 17 and March 20, 2023, asking twelve different questions: (1) When you were growing up, which financial topics did your parents talk to you about? (Select all that apply); (2) At what age did you become comfortable with basic money skills (i.e., writing a check, balancing your accounts, budgeting)?; (3) At what age did you start saving and planning for retirement?; (4) How much cash do you think you should have on hand in case of a national emergency?; (5) Do you think a lack of financial understanding has impacted your ability to be financially prepared for the future?; (6) How much did a lack of financial literacy cost you in the last year due to things like not knowing the best way to save for retirement, not being comfortable with investing, not using a budget, etc.?; (7) Which major financial task is most confusing to you?; (8) What percentage do you think you are required to put down on a home when buying?; (9) Do you feel prepared to handle any possible cuts to Social Security benefits?; (10) How has inflation changed how you handle your finances? (Select all that apply); (11) What’s the minimum you think experts would recommend you have saved to be comfortable in retirement?; and (12) Which of the following do you find most confusing about Social Security?. GOBankingRates used PureSpectrum’s survey platform to conduct the poll.