Home buying for the young and restless
Snoop Dogg, Kendrick Lamar, Drake or Slim Thug aren’t exactly who I would turn to for real estate or home buying advice. However, they did get me thinking recently while I was zoning out.
- “Got real estate over there and hustle over here” — Kendrick Lamar, “Enjoy”
- “Mortgage paid off, got a house that I own/ I traded in the Bentley, call it cash for chrome” — Slim Thug, “Still A Boss”
While none of us are likely to be trading in a Bentley, this did get me thinking about something I’ve been meaning to discuss. A few months ago, during the commercialized “month of love” I discussed wealth management for couples. Then, I was sidetracked by little leprechauns and rainbows and green beer during St. Patrick’s month. Time to focus!
So, this time — thanks to musical inspiration — we’re talking home buying and interest rates. (Not Bentleys though.) How appropriate for the season of growth and new beginnings?
Whether you are ready to step out of your parents’ spare room or ditch your roommate, you are growing up, and possibly thinking of buying your first house. Did you know that home ownership is on the rise again and millennials are making up the largest segment of buying? Perhaps that’s going to be you!
The Fed-effect and interest rate panic
Maybe you were thinking about looking into buying your first house, then you heard the Fed raised interest rates. Last week, the stock market panicked and people panicked and the media PANICKED because interest rates went up by 25-basis-points.
Chances are, your baby boomer parental unit screamed “Buy now before it’s too late” across the house at you more than once after this.
I say: Relax. Take deeeeep breaths. This is only the 6th time this has happened since the financial crisis. Sloth-like. Imagine that cute sloth slowly crawling on its tree, smiling happily, chewing a leaf. This is what you could compare this to.
What does the Fed Fund rate mean for homebuyers?
Mortgage rates rise because the Fed Fund rate is used as a benchmark for a range of consumer interest rates. Simple math then kicks in; affordability decreases as interest rates increase. This is true, and chances are your baby boomer Mom or Dad is screaming about this too. Realistically, though? Interest rates are still at historic lows.
What millennials should really consider when buying a first home
- Are you bullish about your employer’s growth prospects?
- Are you bullish about your own career growth and talents?
- Do you have enough cash saved up for the down payment and for any renovations you would like to do as soon as you move in?
- Have you considered PMI and other costs?
- Do you absolutely love the area you are looking in and could live there forever if you had to?
How to balance the budget when you buy a house
Finally, after considering other factors, you want to talk about creating a “home budget.” This includes planning for things you may not be used to, like maintenance and upkeep. You may want to have a smaller mortgage, so you have some extra cash on hand.
I say this because — trust me — maintenance adds up. Lawns need mowing, pools need cleaning, landscaping needs care, roofs need repair, and we haven’t touched on heating, A/C, or appliances.
Plus, you’ll want to decorate and enjoy your life in your new home. Life isn’t ALL about numbers, although sometimes as a financial advisor it seems like that! You’ll maybe even throw a backyard BBQ or two once you move in (if you have ribs or potato salad, I’m there.)
Planning for your new home is key
Bottom line: without a rich relative or magical source of ever-flowing money to fall back on, buying a new home can be terrifying. I’ve been there too.
Careful planning, saving, and budgeting can allow you to be careful about your decision. You’ll be able to consider all the different factors involved, not just interest rates. Then you can have some fun building your new future, which is likely so bright you’ll have to wear shades.