Many millennials are considering buying a house in the current economic climate. However, the cost of houses is on the rise. It can be difficult for millennials save enough money to purchase a home.
This, combined with the other monthly expenses they have means that millennials may not be financially prepared to purchase a home.
It takes patience and discipline to find the perfect house. Millennials should not rush into it. What can millennials do to prepare for the costs associated with buying a house?
Know How Much Money You Need
First, millennials must ensure they have enough savings. Lenders could deny financing to prospective homeowners if they don’t have enough cash.
Conventional mortgage lenders require 20% down to avoid PMI. However, some lenders may allow homebuyers to obtain a home with as little as 3.5% down.
The $8,750 down payment is required if the home is valued at $250,000. Potential homebuyers who have less than this amount saved could be denied a loan.
In addition, homebuyers must also pay closing costs after saving enough money for the downpayment. This includes the inspection, appraisal, and fees incurred by the closing attorney.
Even if they have grandparents and parents to support them, millennials still need to build an emergency fund to cover any repairs that may be required. A good rule of thumb is to save money and keep at least three to six month’s worth of emergency funds in a liquidity account. It might be wise to wait if this money isn’t available.
Millennials Need To Wait for The Right Time, Not Jump In Unprepared
It is a smart investment to buy a home. However, it is better not to rush to make a decision. Millennials should ensure they have enough savings for a downpayment.
Furthermore, they should also have an additional 2 to 5 percent of the loan value in savings to pay closing costs. A liquidity fund should be set aside for homeowners with at least three to six months’ worth of living expenses.