If you’re one of the nearly 30 million millennials with college loans today, you may be wondering how you can pay those back and afford a mortgage payment, too.
The good news—and what you already know—is that your college degree can enable you to have a better paying job or career, which helps make homeownership possible.
Data in a recent article in First American’s Economic Center blog on the value of a college degree bears that out:
Student-debt adds up, but higher education leads to higher income, and the increase in income attributable to higher education far outweighs the impact of student loan debt.
– Odeta Kushi, First American Deputy Chief Economist
If you're like most millennials, you've already been online looking for some perspective on your home-buying prospects. There you likely found a wealth of articles on the subject of student loans and homeownership. What those articles don't cover well enough—and what you need to know—are all of the other possible expenses that come with buying a home, beyond the mortgage payment.
So here's how to get prepared, because homeownership may not always be easy, but it's possible, even if you are still paying back those pesky student loans.
Here are four other expenses to factor into your calculations:
Your county or local government will collect about 1% of your home’s assessed value (purchase price) as property taxes each year. So for a $250,000 home, you would pay about $2,500 per year. Your total tax usually will include additional fees and bonds that can also add up. You can use online tools to find your local property tax rate and figure out what you’ll pay each year.
Private mortgage insurance, or PMI, is an additional cost that the lender charges when buyers purchase a home with less 20% down. Lenders usually require this insurance be included on mortgage payments until you have at least 20% equity in the home. PMI can run as high as 1% of the value of the home, which on a $250,000 home, would be add about $200 to your monthly payment.
If your new home is a part of a homeowners association (HOA), it is important to know the amount of the monthly fee you must pay. Fees typically can be around $200-$300 per month. These fees typically pay for amenities in the neighborhood, such as landscaping, gates, utilities, snow removal, and other things. Most HOA fees are non-negotiable aspects of a mortgage payment, so you need to factor that into the lifetime of your mortgage.
Home maintenance and repairs are another expense you should budget for. Ask any homeowner and they will tell you there’s always something that needs to be fixed, and frequently, it’s not cheap.
You can mitigate the cost for repairs with a home warranty from First American. A home warranty protects your home systems and appliances, so you don't have to worry about huge, unexpected repair or replacement bills when a covered item breaks.
Home warranties don’t cover replacing structural items like a new roof or windows, or things like fences, so many real estate pros recommend putting aside about 1% of the purchase price to cover yearly cost of home maintenance and improvement. Using the same example of buying a $250,000 home, you should set aside $2,500 per year to savings at a minimum to cover the cost of unexpected repairs.
Being more prepared about the costs of buying a home can help you avoid an issue uncovered in a 2018 Millennial Study, in which 68% of millennials reported buyer’s remorse after going through a home-buying process, wishing “they had been more prepared going into the purchase.”
Now that you know your monthly expenses may be more than a listed mortgage payment, you'll be more able to assess how much home you can afford as you continue to pay off student loans.
Like your education, homeownership can also pay off for you. In fact, real estate can be one of the best long-term investments you can make. Buying a home also provides an excellent way to build credit, especially for millennials. Plus, unlike being a renter, you don’t have to worry about your rent increasing.