The housing market continues to grow this year. Low mortgage rates, job and wage growth are driving demand and enticing new players to get into the market. In fact, a large part of the new entries into the market are Millennials and first-time home buyers.
However, sometimes the road to homeownership can be complicated and being financially prepared is key. We interviewed KB Home Chief Operating Officer Matt Mandino, who shared tips on how millennials (and all first-time homebuyers) can prepare for buying and looking for a new home. First-time homebuyers made up more than 55 percent of the quarter two 2019 business for KB Home, and because of this, the company has lots of advice for helping others become that first time buyer.
Rae: Millennials are just getting their footing financially. Are you seeing them enter the housing market?
Mandino: While millennials delayed buying homes for years, we are now starting to see greater demand from this generation. And this is a great time for first-time buyers to engage as interest rates are extremely low.
Rae: What tips can you share with first-time homebuyers to prepare them to make what will likely be the biggest purchase in their lives?
Mandino: The best advice I can give is to consider all options before making any decisions. I suggest making a list of the “must have” and the “nice to have” features you want in a new home, then consider the following factors:
· Affordability: The first thing you need to do is consider how much you can afford in a home and keep in mind the upfront costs as well as the ongoing costs of ownership, such as maintenance and utility expenses.
· Buying new vs. used: Once you have your list of must-have features, consider first if you want to buy a new or used home. If open floor plans, flexible living spaces, personalized design, energy and water saving features, and lower monthly utility costs are key, then buying new might be your best choice.
· Community: Feeling at home also includes the community. Look for access to parks and playgrounds, desirable school districts and easy access to commuting routes. Also consider amenities like pools, community centers and sports fields that are often found in new home communities.
· Personalization: Think about how you can make your home truly yours. Do you want to be able to move in with the flooring, cabinets or lighting of your choice? Looking at new construction can help you find [we plan to use this phrase to refer to inventory homes going forward] features that may be missing in used homes. Some builders have design studios where you can get a sense of what your options are. You should visit the studios to learn more about the builder and educate yourself on what to look for in a home.
Rae: Are things like Student Loans and Credit Card Debt making it harder for millennials to enter the real estate market?
Mandino: High amounts of student loans and credit card debt can make it hard to qualify for a mortgage. Reducing debt can ensure that the mortgage process goes smoothly because it helps improve your debt-to-income ratio.
Rae: Are there any programs or resources for first-time home buyers?
Mandino: One of the biggest challenges facing first-time home buyers is having sufficient money for the down payment. A common misconception is that you need at least a 20 percent down payment to purchase a home. There are plenty of resources and mortgage programs available to first-time home buyers to assist with down payment and closing costs. Here are a few of the most popular mortgage programs:
· First-time home buyer educational programs: Potential buyers are encouraged to complete this education course as it may help them qualify for down payment and closing cost assistance programs. Just note that programs vary by state, so make sure you do your research. For a list of HUD Approved Housing Counseling Agencies for each state you can go to HUD’s web site.
· Conventional loans: These loans are available with a down payment as little as 3 percent.
· Federal Housing Administration (FHA): FHA loans can help those with weaker credit attain a new home with as little down as 3.5 percent.
· U.S. Department of Veterans Affairs: This is one of the best loan programs if you are a veteran or a surviving spouse. The VA offers home loans with no down payment to help active duty, veterans and surviving spouses buy homes.
· State programs: Check with your state and local municipalities because many offer down payment and closing cost assistance programs for first-time homebuyers as well.
Rae: We share some further tips to getting ready to become a first time home buyers, we call the process bootcamp for home buyers.
Rae: Do you recommend people work with a real estate agent? If so, what are some tips for finding a good one to work with?
Using a real estate agent for a first-time home buyer is one way to navigate the buying process. Here are a few tips to help see if a real estate agent is right for you:
· Get referrals: Talk to your friends and family members about their experience with real estate agents and how they decided on the right one.
· Do your research: Once you’ve gotten some referrals, do some online research about the agent.
· Find the right expert for your needs: Make sure your real estate agent can help provide guidance on buying new vs. used homes. We know that some homebuyers like to navigate the process on their own and some homebuilders, like KB Home, allow you to partner with them directly throughout the entire building experience with support from a team of sales counselors, Design Studio consultants, construction superintendents, customer service representatives and KBHS loan officers.
Rae: How should people figure out how much house they should buy or how much house they need?
Mandino: Finding out how much house you can afford starts with looking at your finances. As mentioned earlier, there are homebuyer education programs that are designed to help you understand how much you can afford and how to apply for a mortgage.
Once you’ve figured out a price point that suits your budget, it’s a great idea to look at options within your budget in the area. Check out the amount of square footage and other “must have” features such as the number of bedrooms. Also, to note, buying a new home does not require any additional investment in remodeling and can also deliver substantially lower monthly utility costs compared to typical used homes. Most new homes come with a warranty which will help further minimize out of pocket expenses that can occur in the early part of home ownership.
Rae: What other tips can you share to help people find not only the right home but the right location? (Thinking schools, community, jobs, etc.)
Mandino: Location often drives first-time homebuyers’ searches. In addition to commute times, it is just as important to look at school districts, proximity to retail and community amenities.
Rae: The market for first homes has been hot for years. We have seen that changing a bit at the higher ends of the market. Is now a good time for people to buy a home?
Mandino: First-time homebuyers continue to come into the market with Gen Zs joining millennials in this life milestone. It’s a really good time to buy because market conditions are favorable and interest rates remain low.
Rae: Is the purchasing process different for new versus existing homes?
Mandino: New homes offer contemporary floor plans and personalized design touches that many used homes don’t offer. Buying a new home can also be more affordable in the long run because water and energy saving features mean substantially lower monthly utility costs. With used homes, you have limited options and they most often do not have a warranty. Customers who buy a KB home can look forward to not only a new, personalized home at an affordable price but also having a real partner in the homebuying process.
If you decide to go with a new home builder, research the reputation of the builder. There are third-party sites such as TrustBuilder where you can see how new home builders are rated and the experience they offer.
Rae: Buying a home is just part of the home ownership process. Make sure to work with your independent financial planner to come to a realistic budget for how much house you can afford. Beyond the mortgage, taxes, and insurance, maintenance can easily run into the thousands of dollars per year. A home purchase should not be rushed into, take the time to find the right home for your needs and at the right price.