Strategies for Younger Buyers
Strategies for Younger Buyers Purchasing a Home
As millennials head into their initial home-buying years, the real estate market is ready for this huge demographic influx. Many young people think they can’t afford to buy a home, but they may not know about the tools available to help make home ownership a reality.
Loan Options and Saving for the Down Payment
Hawaiian real estate is expensive, but the 20 percent down payment found in cheaper areas is not the rule here. Many first-time buyers put down 5 percent, which for an average $600K home means saving at least $30K and financing the remaining $570K. Assiduous budgeting and saving can get you to that $30K figure within a few years, but there is another avenue – which does not involve gifts from relatives. That’s using money from your retirement savings account to help finance a first-home purchase. If you take the money from a 401(k), you will have to pay a 10 percent penalty. Take the money from an Individual Retirement Account (IRA) for that first home purchase, however, and there is no penalty. There is a lifetime limit of $10K, but for a couple who each take that amount from their IRAs, they are 2/3 of the way toward that 30K down payment.
If a millennial is a veteran, he or she may qualify for a VA loan, which may not require any down payment. VA loans also do not require private mortgage insurance.
This is a generation who, due to the Great Recession and unprecedented student debt, tended to live with their parents longer than the Baby Boomers. If living with the parents for a while can help millennials save money for a down payment on their own house, it’s a worthwhile tradeoff.
Millennials may consider a Federal Housing Administration (FHA) loan, which does not require as large a down payment – perhaps as small as 3.5 percent of the dwelling’s price. Since an FHA loan is guaranteed by the government, qualifying is easier than with conventional mortgage loans. FHA loans are available for those with lower credit scores. However, loan amounts are not as large, and you will have to pay a mortgage insurance premium. These premiums can cost substantially more than the private mortgage insurance needed for some standard loans.
The Right Realtor
Working with the right realtor can help millennials make their home ownership dreams come true. A real estate agent who specializes in marketing to millennials is not only technologically savvy – an absolute must for this generation – but can guide clients toward affordable homes, appropriate mortgage choices and assist in answering any questions regarding the home purchase process. Since most millennials are extremely cost-conscious, the right realtor helps save them money in ways large and small. Many millennials simply lack the financial knowledge needed to make homebuying and mortgage decisions, and the right realtor can act as instructor.
If you’re looking to buy or sell a home you need a knowledgeable, experienced realtor. Contact Island Realty Group LLC at 808-689-7407 or IslandRealtyGroup@irghi.com.