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Guide to Home Buying for Millennials

BUILDING WEALTH

Mortgage Lender Bloomington, MNWhen I was 24 and a single guy I bought a four-bedroom house in Bloomington. It wasn’t because I needed four bedrooms for myself, it was because I had three other college roommates that were all looking for a place to live. I thought to myself “what an opportunity – I could charge each one of them $500 a month for a room and have $1,500 a month coming in.” The corresponding mortgage payment of $1,400 per month was covered and I had $100 to spare. Granted that was 2004 and the recession was right around the corner. Had I been smarter I would have sold the house after a couple of years and taken my gains, but you can’t really time the market. So, fast forward 15 years and now property values have reached an all-time high. Sure, the short-term gain wasn’t there, but over the long-term I built a great amount of wealth. And let’s not forget about all the rent money that I had coming in from my roommates all those years. Now I have four rental properties, Partner in a residential real estate development company, and a full-time role as a Mortgage Loan Officer. For most Americans owning real estate is the number one way to build wealth. So how do we get included when most of you feel precluded from homeownership? This is where strategy comes in.

AFFORDABILITY AND QUALIFYING

Who says you have to be able to afford a home all on your own? Some mortgage programs allow for rent from roommates to be counted into your income to help you qualify. On a duplex, if you can find one that’s reasonably priced right now, you can use the rent from the other unit to help you qualify. If you buy a big enough house and have enough rooms it is very possible to have your entire mortgage payment covered by the rent and you live there rent-free. Use that money to work aggressively at paying off some of those student loans or other debts that you incurred while starting out your career. It only takes a little bit of strategic planning to make homeownership possible for many who thought that it wasn’t. We have far too many scenarios to play them out Dave Ramsey style here, so the best thing to do is get started with a preapproval request. We’ll go through the strategic planning customized to your scenario.

THE STUDENT LOAN BATTLE

I know many millennials are straddled with student loans. We hear it on the news all the time. I couldn’t tell you the exact statistics, but let’s say on average a millennial has $20,000 worth of student loans. We think this is a exclusionary factor for homeownership, when in fact it’s really not. Consider that mortgage underwriting requires us to use 1% of the student loan balances in a monthly payment analysis – that’s $200 a month. Some programs allow us to even use those income-based repayments to help you qualify for a mortgage. So if you have a salary job making $48,000 a year, have a student loan and a car payment, the student loan is 20,000 the car payment is 400 bucks, that means you could still qualify on your own for a $1,400 mortgage payment. That could still get you a $200,000 home. I know a few Realtors that could find a plethora of $200,000 homes with three bedrooms, you rent out each room at $600 a month and presto you’re living large for a $200 mortgage, less than rent, less than your roommates pay, and now you’re sharing in equity appreciation.

WHY NOT?

Now your parents might say go for it and “get the heck out of our basement.” Your Uncle Larry the financial planner might say “well you’re not considering utilities, or what if something breaks, or or what if one of the roommates doesn’t pay, or moves out, or worse yet trashes the place.” Yes those are all risks but they can be mitigated. Your roommates would have to pay a deposit anywhere else that they move to, and try to pick respectable roommates with a decent job. If they trashed the place you can sue them. As far as something breaking, there are home warranties that you can negotiate for the seller of a house to buy for you to cover everything major. And utilities? – divide them three ways. You’re going to be paying utilities anyway if you’re living with Mom and Dad, and if you’re not paying utilities now – share shame on you.

THE VERDICT

It comes down to a matter of alternatives. Maslow’s Hierarchy of Needs has shelter right there on the basic level. Food, water, shelter. You have to live somewhere. It might seem exciting to live in a tiny home out in the woods, but do you know someone who owns woods? Would they let you just camp out there indefinitely? And do you know anything about building a tiny home? Youtube might have the step by step, but it isn’t going to save you when you wire something wrong and the whole thing burns down. Let’s get real – the alternatives are renting from someone or owning. For some, renting makes sense. Maybe you are planning to move to warmer climates (not far from my mind after this winter, trust me!). Perhaps you want to travel the world and not be bogged down with maintenance (associations have maintenance agreements to take care of it for you). Or, you want to rent because you want to help make people like me richer.  Either way, renting does nothing to help you build wealth. Let’s get on the train, take a fresh view at what homeownership has to offer. Stop reading into the news, all the bogus online articles about how homeownership isn’t affordable, or you can’t do it – you can. The American Dream, as we see it, should be available to attain for everyone who has the desire and works for it. Start a conversation with us today and we’ll customize a plan for tomorrow. We’ll review, advise, create a plan, and guide you free – all things you won’t get a from a bank. The age-old wisdom used to tell us every wealthy person has a great attorney and CPA. I would add a damn smart mortgage expert and a Realtor that has the mindset of Indiana Jones to that short list.

Buyer must qualify under program guidelines. Not all borrowers will qualify. This is not a solicitation and not a commitment to lend. Mortgages Unlimited is an Equal Housing Opportunity lender.

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