An Open letter to Millennials and First Time Home Buyers
When I talk to millennial about the advantages of owning their own property they often come back to me with approximately the same three responses:
1) I can’t take care of a house I can’t even take care of my CAT!
2) I don’t know where I want to be living 2 years from now
3) AHAHHAHAHAHA! I can’t buy a HOUSE I have no money.
I won’t address objections 1) and 2) Although, for the record, I think taking care of a house is actually easier than taking care of a cat. And yes, if you are going to move around a lot in the near future, don’t buy a house.
But let’s stop and talk about objection 3) for a moment. I DON’T HAVE ANY MONEY!
I GET IT! You are paying crazy rents, student loans, and working for close to minimum wage. The truth is buying a house is probably not as expensive as you may think. Yes, it takes money to buy a house, but how much? There are many loan programs out there and you should talk to a mortgage lender (Mortgage lenders were not all created equal- Ask me for a recommendation firstname.lastname@example.org) A lot of young folks have it stuck in their heads that they will need 20% of the purchase price for a down payment. NOT SO! Conventional financing asks for 5% down and FHA loans only require 3.5%. If you have less than 20% down you will have to pay PMI on the loan until you have 20% equity in the property. (If those last two sentences make your head whirl, don’t worry about it- we are going to break this thing down further for you. Keep reading.)
Let’s make this easy and look at some numbers. The average first time home owner house price in the Chittenden/Franklin County area is around 200,000-275,000K. Let’s go for the middle and say you want to purchase a home for $237,000. Looking at using an FHA loan- A 3.5% downpayment on $237,000 is a downpayment of $8295.
If your mind just screamed I DON’T have $8,000! Please hold that thought and continue reading.
Or perhaps you know a little about the process of buying a house and you ask–“ok sure, but what closing costs? –I hear those are really expensive!” This is true. Closing costs, as a rule of thumb, will run you around an additional 3%-3.5% of the purchase price of the home. That is a lot of additional money. Don’t. Worry. There are ways around paying out of pocket closing costs. In some cases, the seller will pay your closing costs or you can potentially mortgage them into your loan. This is not always possible, but often times it is. If the seller is unable to contribute to closing costs or if the home won’t appraise with closing costs mortgaged in you can always move on to another home.
Did you get all that?
Yes! GREAT! I’m impressed. You are a house buying whiz kid.
No? That’s fine too. Here is the takeaway- If you don’t have the money for closing costs it doesn’t mean that you can’t buy a house. So let’s put closing costs on the back burner for now and move on.
So, back to our $8295 that you need for your down payment. You still don’t have eight grand. So now what? In steps VFHA (http://www.vhfa.org/) This organization is AWESOME and they are working hard to help Vermonters be able to afford homes. And brand new this year ASSIST loan is available, providing up to $5,000 in down payment and closing cost assistance. You have to pay it back (but at no interest!) when you sell the house or when you refinance, but you don’t need to have that money now. Find out more at: http://www.vhfa.org/homebuyers/loanprograms/mortgageloanoptions
So now we’ve knocked off 5K! (all buyers and all transactions are different and you may not qualify for VHFA Assist- but let’s get you talking to a mortgage lender to find out if you do!)
$8295- $5,000 = $3295
Do you have or could you save up $3,295?
Did you say “No way!” – Ok, you are right, home ownership is not a good idea for you right now. Get off my blog and go back to playing video games.
Yes! I can do that!- Awesome. You could buy a house. It seems crazy right!? You really can do it. If you want to explore further give me a call or shoot me an email or a text or send me a facebook message (Yup I text and facebook I’m a millennial too).