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100 QUESTIONS EVERY FIRST-TIME HOME BUYER SHOULD ASK by Ilyce Glink

Here come the Millennials. Finally. And, according to the entire real estate industry, not a moment too soon.

For the past decade, since the Great Recession forced so many Americans to put their lives on hold, the world of real estate has been praying for the arrival of Millennials on the home buying scene to begin buying, selling, fixing up, and financing property. It’s been quite the waiting game: when I first started writing about real estate, the average age of a first-time home buyer was 26. Today, it’s nearly 34.

There are a lot of explanations for the delay: Millennials who graduated from college in 2008 to 2012 found a weak job market. Many of them moved home instead of moving out with a friend (or by themselves) and renting their own place, typically a precursor to home buying. Roughly a third of them are still living at home. Older Millennials watched as parents lost jobs, tapped their 401(k)s to survive, and took jobs that paid less (and often didn’t offer benefits), and their families struggled to make ends meet. Millions of homeowners couldn’t sell when they needed to and lost their homes to foreclosure, destroying credit histories and confidence in the process. When you lose confidence in yourself and your ability to pay the bills, it’s awfully hard to make the commitment to buying something as large and as permanent as a house.

But Millennials also have cash flow issues, thanks to their student loan problem. About 44 million Americans are paying off student loans these days, to the tune of $1.4 trillion total. The average amount of student loan debt has tripled over the past twenty years, and most 2017 graduates were carrying about $36,000 worth of student loans as they made their way out of college and into their adult lives. Here are some facts about Millennials and student loan debt that make the real estate industry very nervous:

   • Some 58 percent of college graduates† reported having student loans;
   • 44 percent don’t know the difference between private and federal loans;
   • 45 percent don’t know what percentage of their budget goes toward paying down student loans;
   • 37 percent don’t know what interest rate their loans carry;
   • 15 percent don’t even know how much they owe;
   • Default rates are running between 7 and just over 11 percent, depending on the type of loan and whether the school was private or public, according to the Department of Education.

For those Millennials who are making their payments, paying off student loans can delay home buying because monthly debt service payments are deducted from the amount someone has available to repay debts. That, as we’ll discuss later in the financing section of the book, leaves you less income to qualify under the government’s Ability to Repay rules.

Finally, one of the great drivers of homeownership is the next generation. Along with everything else, Millennials have time-shifted marriage and children. They’re marrying later than any generation and having kids when they’re older. If you’re single, or even if you’re in a long-term relationship but without kids, you’re probably not looking for a house in the suburbs with a good school district. And, because you’re changing jobs fairly frequently, having a longer-term commitment to real estate isn’t particularly high on the list.

But times they are a-changing. According to the latest figures from the National Association of Realtors, Millennials accounted for 34 percent of home buyers in 2016, the latest year for which data is available. And almost all of them were buying homes for the first time.

Who Are Millennial Home Buyers?

According to the Pew Research Center, Millennials (81 million of them) are those individuals born in 1981 and later, up until today. But other researchers cap the era of Millennials at those born between 1981 or 1982 and 1994 or 1995, which would put the youngest Millennials at around age 22 or 23 (as I write this), up until about age 36 or 37. That makes sense to me, since I see Generation Z (the generation younger than the Millennials) as a next-gen group that some are already calling Digital Natives. (I tend to refer to them as “the generation born with a chip built into their brain.”) In short, the oldest Millennials will remember life before Google and what a telephone’s busy signal sounded like. Gen Z (including my own kids) won’t.

Around the world, Millennials are considered one of the most consistent generations. Much of this has to do with the Internet; this cohort is the most tech-savvy, and technology has flattened much of the world. Information flows freely, is adapted to life seamlessly, and has profoundly (and quickly) changed life for them and their parents. It’s certainly changed how people shop for, buy, sell, finance, and invest in real estate.

Unsurprisingly, according to the 2016 Survey of Home Buyers and Sellers, an annual report published by the National Association of Realtors, first-time buyers fall directly into the Millennial sweet spot:

   • They’re a median 32 years old. (All home buyers lumped together are a median 44 years old.)
   • Their median income is $72,000.
   • The median price of a first-time buyer’s home purchase is $182,500, although that ranges from just about $161,000 for unmarried couples to $208,500 for married first-time buyers.
   • 72 percent are married, or an unmarried couple.
   • 6 percent is the median down payment.
   • 60 percent have no children.
   • 95 percent either rent or live with their parents before buying their first home.
   • 1 percent purchase the home they had previously rented.
   • 87 percent were born in the USA.

Is this you? Then you might be ready to buy your first home (even if you don’t realize it yet).

One of the last things I did as I was sending the first edition of this book off to press in 1993 was get an AOL email. I think AOL had fewer than 100,000 people who were signed up for email at that time, but almost as soon as this book was published in 1994, I started receiving messages from readers. We were the “early adopters” of our generation. Then, no one would have thought to look for a house online (the early photos were black-and-white shots of the front of houses, basically reused from listing books that were typically published every two weeks, and jealously protected by real estate companies), much less buy without ever seeing it in person. There was no Google, no Zillow, no Trulia, no agent websites to speak of. (What did happen, in 1993, is that mortgage interest rates dropped below 7 percent for the first time since World War II, and basically haven’t gone back above 6 percent for more than a few months since.)

How far we’ve come. Today’s Millennial home buyers have demanded tremendous and continuous technological change from Realtors, lenders, and others in the real estate community. You can do just about everything you need to do to shop for, buy, and close on a home with your phone, including download and read a digital copy of this book (and link to ThinkGlink.com/first-time- buyer for updates). That’s still tough for your Baby

Boomer brokers to get their heads around. The tech world has delivered, and made billions of dollars in the process.

So, it’s never been easier to find, buy, and finance the right house: as long as you have great credit, sizable savings, little or no debt, and plenty of income. And that’s where first-time buyers typically fall short. Since the Great Recession, millions of homes have been swooped up by investors. Prices have risen 41 percent in 5 years (2011–16), while incomes have only risen 11 percent. Interest rates seem poised to rise above 4 percent for a thirty-year fixed-rate mortgage (and were briefly above that at the beginning of 2017, before falling back). Affordability is worse.

With these changes come new (and important) questions you should be asking as you set out to explore the world of homeownership: Should you buy a home now or rent? Should you buy with someone or on your own? Is your job (and income) stable over the next five to ten years? Should I spend every last dollar the mortgage lender says I can?

To borrow a phrase from Oprah, here are some things about the residential I know for sure:

   • Over the past 25 years, homes have appreciated in value. Not every home, and not everywhere, but for the vast majority of Americans in much of the United States.
   • Twenty-five years from now, the real estate market as a whole will be worth substantially more than it is today. Buy smart and you’ll not only have a better quality of life, but you’ll enrich yourself and your family.
   • That’s because a home continues to be the centerpiece of a family net worth. Every mortgage payment you make is like enforced savings. (When you rent, you’re paying the mortgage of the investor.)
   • And finally, the younger you are when you buy your first home, the wealthier you’ll be later in life.

Let’s get started.