Los Angeles resident Shirley Zhang, 27, knew that the first property she bought wouldn’t be her “forever home.” She couldn’t afford her dream home right away, but she still believed that buying property was a smart financial move.
“I was really looking for a good value,” Zhang says. “This was going to be the largest investment of my life, and I wanted to invest in something that I believed would appreciate over time.”
Last January, Zhang closed on a two-bedroom condo in Chinatown just blocks from her office and nearby to public transportation. The unit needed some major renovation, and Zhang and her husband spent the next few months working with contractors to fully remodel the kitchen and bathrooms.
The payoff has gone beyond the financial aspects. “We bought at a good time,” Zhang says. “It’s nice to see what house prices are doing, but the sense of ownership has also made me happy. I’m so proud of having pulled this place together, and even though we’ll move out one day, it’s nice having all the design elements that we picked out ourselves.”
Zhang’s enthusiasm for real estate is not matched by all her peers. The share of first-time homebuyers has been declining in recent years, while the age of first-time buyers is on the rise. That’s due to shifting values around homeownership as well as stagnant wages, a tendency to marry and start a family later, and declining levels of home affordability.
Still, three-quarters of millennials who currently rent want to buy a home, and a quarter of them want to do so in the next two years, according to a survey by ApartmentList.com. With both mortgage rates and home prices projected to increase over the next few years, if you’re going to purchase a home, doing so sooner rather than later could mean serious savings.
If you’re considering becoming a homeowner this year, here’s what you need to know:
Of course, it may still make sense to rent, even if it’s more expensive in the short term, if you’re planning on moving in the next few years or you’re worried about your job security. “Before making the jump from renter to homeowner, a prospective buyer needs to make sure they are really ready for all the financial responsibility,” says Trulia spokeswoman Lynette Bruno.
The average credit score on approved mortgages in November fell to 721, the lowest level in at least four years, according to Ellie Mae. New conforming loan limits in some areas and low-down payment mortgage programs are also making it easier for first-time borrowers to obtain financing.
If you’re thinking about buying a home in the next year, pull your credit report now to make sure that your profile will put you in the best possible light with lenders. If your score needs a boost, focus on clearing up errors, making all payments on time, and reducing the overall amount of credit you’re using. “Be current on all your bills and stay away from making any big purchases before you apply for a loan,” says Pavel Maryska, a senior vice president and head of mortgage lending at East West Bank.