The Ultimate Tips for Millennial Homebuyers
Are you a millennial thinking about settling down and buying your first home? Saving for the 20% down payment can be overwhelming – for many of us, it’s tough to know where to begin! To help ease the burden, we rounded up the financial experts to weigh in with their best tips for millennial homebuyers. From long-term investment strategies to day-to-day saving tips, whether you’re in Sacramento or Philadelphia, here are the best ways to inch toward your first home straight from the experts that know best.
Michael L. Schwartz, RFC, CWS, CFS Schwartz Financial Services: If saving for a down payment on a home, set a budget and save 20 – 25% of your pay, put it in a separate account that you will not raid for other expenses such as a savings account or money market account at an out of town institution. If you are hoping to purchase this house within 18 months do not invest in a mutual fund or stock as the market may take a downturn and your funds may reduce when needed.
Chad Schiel, Schiel Wealth Management: In most places, a 20% down payment is well over $100,000, and simply cutting back on spending and saving the difference isn’t a viable strategy for most people. Instead, look to invest your month-to-month savings in quality stocks that pay high dividends over 7% and have a 12-36 month growth projection.
Trent DeBruin, MD Wealth Management: Automate your saving. Figure out how much you need to save each month to reach your down payment goal, then set up an automatic monthly transfer from your bank account to an account earmarked for the down payment. This removes willpower from the process and makes it much more likely that you’ll stay the course with your saving plan.
Jeanne Klimowski, Wavelength Financial Content, Inc.: Change your mindset first. Realize that every one of your hard-earned dollars will either start working for you (when you save it) or it will end up working for someone else (like the shareholders of the auto or clothing company, the restaurant owners, etc). Once you remember that, it will become second-nature to look for savings opportunities everywhere.
Sean M Hollitz, ChFC, CFS, CLU, CAS, CLTC | Founder and Managing Partner at BlackDiamond Wealth Management: Discovering what you need to stay motivated during the savings process is the biggest proponent to successfully funding your down payment. We recommend using a financial planning tool that provides you daily updates, alerts, and progress reports, like our Elevation 360 program, which offers you a personal website and acts as a visual reminder of where you are on the path to your goal.
Brennan Drew, Westpac Wealth Partners: The biggest piece of advice I give to millennial homebuyers is creating systematic savings in a money market account outside their normal saving and checking account. By having auto savings each week and/or month it creates discipline and behavior momentum in watching a single account grow towards achieving their goal. There is no need to have the added risk of investing in stocks or bonds.
Andy Ward, Senior Associate, Strategies for Wealth: Plan beyond the closing: Identify the expenses associated with home-ownership that are beyond the down-payment such as closing costs (approximately $5,000-$15,000), funds needed to furnish and decorate, and additional savings needed for emergencies or repairs (also often required by the lender for mortgage approval). In addition to the down-payment, I recommend a minimum of 3-6 months set aside for living expenses. Traditionally, 20% cash down-payment avoids PMI (Private Mortgage Insurance). PMI is a cost passed onto home-owners who are unable to put 20% cash down, and typically ranges from 0.5% – 1.0% (so $5,000/yr for a $500,000 mortgage). As an alternative, a piggyback loan or 80/10/10 loan allows a borrower to take taking two loans simultaneously: one for 80% of the mortgage and the other to provide cash for the 20% down-payment, which avoids PMI.
Debra Taylor, CPA/PFS, JD, CDFA, Wealth Manager, Principal and Founder of Taylor Financial Group: If you are healthy, consider a high deductible medical plan, and take the savings and invest towards your down payment (or consider opening a Health Savings Account or Roth IRA). In addition, money from a Roth IRA can be withdrawn penalty-free for a down payment for a first home up to $10,000.
Eric D. Bailey CFP, Founder and Principal of Bailey Wealth Advisors: Evaluate and manage your present debt (to include student loans and credit card, etc.,) and consider debt consolidation in advance of entering the home buying market. Work with professionals such as debt managers or financial advisors to help prepare you for all the financial challenges and opportunities of home ownership.