It’s not all ‘doom and gloom.’ Home buying tips for California millennials
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Millennial Real Estate Market
The millennial generation now makes up the biggest group of California homebuyers. How are they able to afford homes despite a statewide housing shortage and affordability crisis that make buying difficult?
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Are you a millennial trying to buy a home in California?
Millennials aged 23 to 38 made up the largest share, 39.1%, of Golden State homebuyers in 2020, according to the California Association of Realtors.
It’s not always easy, especially in a state plagued by a 3.5 million-unit shortage and affordability crisis. The median price tag for a single-family house surged to $818,260 this May, a number incomprehensible even to those who aren’t living paycheck to paycheck.
But it’s not all “doom and gloom,” said Leanna Halldorf, a millennial real estate agent in Sacramento who specializes in helping first-time buyers.
Instead, it’s about setting the right expectations.
“It’s not, ‘I can never buy,’” Halldorf said. “It may be that you can’t buy right now, but we’re going to give you the tools for where you want to be.”
Whether you want to own a home in five weeks or five years, Halldorf said it’s best to begin the process as soon as possible.
Much of it comes down to basic financial planning, and a bit of patience.
Here are Halldorf’s tips and tricks to finding your first home, whenever you’re ready.
▪ Find a trusted real estate agent, someone invested in your success and who wants to be a resource for you along the way. Avoid pushy people, and take some time to shop around to find a good fit. You should feel comfortable asking questions, and lots of them.
▪ Once you find the right agent, begin with a financial consultation. That will set you on the path toward pre-approval for a price point that fits your budget. The meeting should help you identify questionable spending patterns and your debt-to-income ratio.
Halldorf said she will have a lender on the line to help answer financial questions.
Lenders want to know what kind of debt you have, Halldorf said, and specifically they want to know about your credit cards. Keeping usage “under 30% is good,” Halldorf said, “but 0 to 10% is even better.”
Ashley Dixon, lead planner for the financial advisory group Gen Y Planning, also encourages her clients to get their credit score above 750.
“If it’s under 700, something is not good,” Dixon said, adding that eliminating credit card debt and staying on top of payments can bump your score.
If you do have debt, including student loans, don’t worry.
“It’s another myth that you can’t be in any debt to own a home,” Halldorf said. “But it does affect how high (of a loan) you can qualify for a home.”
▪ Using this information, you can create a savings “game plan,” Halldorf said. You’ll need to budget for your mortgage, of course, but also for closing costs and the down payment.
Sixty-four percent of first-time buyers in 2020 put down less than 20%, according to Zillow. A quarter put down 5% or less.
Halldorf said most of the homeowners she works with can’t afford a large initial payment. Instead, she helps them save for a more feasible 3% or 3.5%.
For those who still might struggle to hit their goals, state and local programs might be of benefit.
The Sacramento Housing and Redevelopment Agency has a list of programs and resources that help low-income buyers find affordable options and mortgage assistance. The California Housing Finance Agency also offers education seminars and certain loan options for low- and middle-income earners.
“What we found is that one of the biggest challenges is not necessarily people can’t afford the monthly payment. They find it hard to save up for the down payment,” said agency spokesperson Eric Johnson.
Johnson recommended talking to a preferred loan officer to begin your journey.
Dixon also said clients need to know if how they’re currently spending money competes with their homeownership goals.
“We’re looking at their cash flow in order to understand where their money is going today,” Dixon said. “We dive into their spending habits and tendencies to understand, ‘Ok, you spend 50% on rent now and you’re not saving anything after that, which means you’re spending 50% of your income on all other expenses.’”
You might need to postpone travel plans, look for another job or request a raise, Dixon said, in order to buy the house you want.
Some clients will do everything it takes to get into their home, Halldorf added, while others aren’t so ready to trim their budget fat.
“I’ve had clients say we’re eating rice and beans until we can get into a house, and they did,” she said. “It really depends on a person.”
▪ Be flexible.
“Compromise in the short term,” Halldorf said, “in order to get to where you want to be in the long term.”
In the current red-hot market, it will take time to find a house that fits your budget and lifestyle, especially when other bidders have substantial cash on hand to be competitive.
“If you want to be making a monthly payment of $1,000,” Halldorf said, “but every house you love is a $400,000 house, then we have to be more realistic.”
You might need to move into a smaller, 1,200 square-foot home, and forego hopes for that extra bathroom. Consider other neighborhoods, or a 30-year mortgage as opposed to a shorter 15.
“What’s nice about that 30-year mortgage is you can always pay more on top of it,” Halldorf said.
Purchasing a duplex or fourplex rather than a single-family home could also be a great way to jump into homeownership, Halldorf added.
You don’t have to live there forever. But it could be a great way to earn extra income through rent while building on your investment as an owner.
“Your first house doesn’t have to be your dream house,” Halldorf said.
This story was originally published August 11, 2021 at 5:00 AM with the headline "It’s not all ‘doom and gloom.’ Home buying tips for California millennials."