Real estate economists who project into the future don’t always like what they see. That’s because many younger people are less likely to buy a home than were their parents at a similar age.
Lawrence Yun, chief economist for the National Association of Realtors, says the homeownership rate for young adults under 35 peaked in 2005 at 43 percent. As of the first quarter of this year, that rate had slumped to just 36 percent.
While it’s true that numerous young adults would love to buy a property, Yun says many are inhibited by financial factors. These include high levels of student debt, slow wage growth and tight credit conditions. What’s more, in some popular metro areas – such as New York and San Francisco – they face extremely high housing costs.
To help make home ownership possible, some young adults have parents who step in. Ashley Richardson, a real estate agent who’s sold homes since 1993, says help may be offered as a spur to young people to finally move out of the family home.
Indeed, she’s worked with a few boomer-age clients who’ve decided to downsize just to push their grown children into independent living.
Here are a few pointers for young adults planning a first home purchase:
1 Get your credit credentials in order first.
Granted, through the Internet you can scrutinize your credit reports and look for blemishes that need fixing. Under federal law, you’re entitled every year to one free credit report from each of the three large credit bureaus: Equifax, Experian and TransUnion. Just go to this website: www.annualcreditreport.com.
But Sid Davis, a veteran real estate broker and author of “A Survival Guide for Buying a Home,” says there’s no substitute for determining your mortgage eligibility by visiting a reputable lender.
“Mortgage pre-approval will tell you definitively how big a home loan you can obtain,” he says.
Going through the pre-approval process will also give you your FICO scores. Such scores, which draw on data from the credit bureaus, provide lenders with a quantitative measure of a person’s credit risk. Most lenders use FICO scores, pioneered by the Fair Isaac Corp.
2 Seek a place that could give you rental income in the future.
A few decades ago, it was only poor people who would consider renting out a room in their home to help offset expenses. But Merrill Ottwein, a real estate broker and former president of the National Association of Exclusive Buyer Agents, says “co-housing” has become increasingly common.
What kind of home should you shop for if you plan to rent out a room? He says to look for a place with a bedroom suite that includes a private bathroom. A separate, outside entrance to the suite is also an attractive feature.
3 Avoid buying an energy-hog house.
While many costs associated with homeownership, such as taxes and insurance, are unavoidable, Davis notes that home shoppers can more easily contain their utility costs by selecting an energy-efficient property that’s well insulated.
Also, make sure you ask the home inspector you hire about the quality of insulation in a property you’re considering and the energy ratings of its windows. Davis estimates that double-pane windows can save you as much as 15 to 20 percent on your utility bills compared with single-pane windows.