Despite being a promising generation for real estate activity, many millennials have reported holding back due to debt. According to the Gallup-Purdue Index released in September 2015, 43 percent of college graduates with more than $25,000 in debt have delayed buying a home.
However, indebted buyers don't necessarily have to be held back. With different avenues for saving and financing, affording a home is actually more possible than ever. If you're thinking about buying your first home, you should definitely know the following about financing it:
Take advantage of historically low mortgage rates
Mortgage rates are continuing their decline and have matched their lowest levels since February 2015, according to recent survey results from Freddie Mac. The data shows that 30-year fixed-rate mortgages average at 3.59 percent, which is down from the 3.71 percent average of the previous week. A 15-year FRM has an average rate of 2.88 percent, down from 2.98 percent, and the 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 2.82 percent, a decrease from the preceding 2.90 percent.
Determine how much you can afford
Instead of simply viewing student loans or any other kind of debt as a reason not to buy, factor it into calculating what you can afford. Individuals with debt are often discouraged from buying before even investigating its possibility.
Tom Anderson, a contributor for Forbes magazine, suggested that buyers start by determining their debt-to-income ratio, or the portion of your income that goes toward paying off loans. These payments will then factor into an overall affordability assessment, which will tell first-timers how much of a down payment and mortgage rate they can afford. If you need more assistance in this process, different financial websites offer calculators that can tell you what to include as factors. Be sure to consider property taxes, insurance and other such costs that might not come up in these calculations.
"There are plenty of options for buyers who can't afford a 20 percent down payment."
Look into down payment alternatives
One of the biggest challenges in affording a home is saving up for the down payment. Typically, buyers are encouraged to put 20 percent down to immediately add equity to the home and lower their monthly payments, but not everyone has that kind of money upfront.
This isn't necessarily a reason to forgo buying, though. There are plenty of options for buyers who can't afford the 20 percent down payment. For example, the Federal Housing Administration can insure loans and help buyers get to a down payment that's as little as 3.5 percent. There are also certain city programs that can help residents afford a home in the area. The Department of Veteran's Affairs and the U.S. Department of Agriculture also offer mortgages for qualifying borrowers with no down payment.
Make a budget and save
If you're not ready to buy your first house just yet, start saving now. If you can budget yourself and put away more money toward a down payment, you'll be in a much better position to take the plunge.
Katie Brewer, a certified financial planner based in Dallas, told Forbes that those trying to save up to buy a home should start by categorizing their budgets, such as monthly fixed and variable expenses and long-term goals. She recommended that individuals spend no more than 50 percent of their overall budget on fixed expenses, like rent and bills, to maintain a healthy budget.
With all these available options, real estate newcomers have more options than ever to realize their dreams of owning a home. For more information about Indianapolis real estate, contact Newkirk Realty today!