Getting started on starter homes
A couple of years ago, housing market analysts predicted that when millennials bought their first home, most would opt for a city place over the sort of suburban house preferred by their parents' generation. But that trend is now beginning to move in the opposite direction.
According to a new survey by the National Association of Realtors (realtor.org), the share of millennials buying in an urban area has now dropped to 17 percent, compared with 21 percent a year ago. What's more, only 10 percent of those buying a city place chose a condo-apartment there.
What's driving more buyers 35 and younger to the suburbs? Lawrence Yun, the association's chief economist, says that many want more space than they can afford in a city neighborhood.
"Even if an urban setting is where they'd like to buy their first home, the need for more space at an affordable price is for the most part pushing their search further out," Yun said.
Tom Early, a real estate broker who was twice president of the National Association of Exclusive Buyer Agents (naeba.org), cites multiple reasons why millennials still prefer ownership of a single-family property versus renting an apartment or buying a condo.
"Rents are soaring, and when you're stuck in an apartment, even one you own, you have less privacy than in a real house," Early said.
Do you aspire to make a starter home purchase? If so, here are a few pointers:
Get picky about the sort of properties you visit.
"Don't be short-sighted about the place you buy. If you're still young and plan to grow a family, look for the largest house you can afford," said Sid Davis, a real estate broker and author of "A Survival Guide for Buying a Home."
"Don't crack your budget, but still try to project to your future needs. It's a lot cheaper to buy extra space now than to move in a few years -- with all the commotion and transition costs that involves," Davis said.
As Early advises: "Forget buying a home the way you'd buy a pair of shoes - to fit your current needs. In the ideal world, you'll choose a place where you could live comfortably for at least seven to 10 years, giving you the option to remain there for as long as you want without outgrowing the house."
Select a place that will be saleable down the road.
"Rising demand for affordable houses among younger adults means inventories of available homes are still in short supply and should continue to be so for more years ahead. Whether or not you intend to have a family, I recommend you buy with resale in mind," Early said.
Assuming you choose a desirable neighborhood, a house with several bedrooms should prove more marketable than a smaller one.
"Also remember that very few people, including singles, want to live in a place with just one bathroom. I've never seen a house with too many bathrooms," Early said.
Screen for high-quality schools.
Just as you'll want to seek a property with multiple bedrooms and bathrooms, so should you favor a neighborhood served by top-rated schools, even if you never intend to have kids.
In most areas, it's now easy to find online comparisons of local schools based on test scores. That's because most school systems freely disseminate test results on their websites.
Also, you can get more information on the quality of schools in a neighborhood you've targeted by buying a report from an educational research service such as SchoolMatch (schoolmatch.com).
But Davis says the best information on school quality typically comes from word-of-mouth sources. For a quick (though unscientific) survey of school quality, he encourages you to go door-to-door in the neighborhood of your choice to ask residents their views.
Look into an FHA loan if you're short on down payment money.
These days, most lenders want substantial down payments for their conventional mortgage programs. But amassing a large down payment is an especially high hurdle for many young adults, especially those burdened with high balances on their student loans or credit cards.
However, as Early says, many starter-home buyers are eligible for low-down-payment mortgages through the Federal Housing Administration of the U.S. Department of Housing and Urban Development. To find lenders near you who make FHA loans, go to this website: hud.gov.
When considering an FHA mortgage, always remember to take into account the mortgage insurance fees that add to the cost of the loan. FHA backs these loans and the insurance coverage protects the government in the event of default.
"Under the right circumstances, an FHA mortgage is a great choice for first-time borrowers. But keep your eyes open and make darn sure you know what kind of loan you're getting," Early said.