Can Millennials Buy Homes?

Full disclosure: This article is extremely long (like the home buying process)! If you just want a general overview, or would like a reference to refer back to in the future, check out our free First Time Home Buyer Guide.

millennial pink house white stripes

Buying a house is an inherently stressful process, but for first time home buyers the process can be especially complex. Many first time buyers purchase condos to take advantage of lower prices and reduce their responsibility to maintain the property.

This may appear to reduce mortgage default risk because the monthly payment is lower, but in reality making the homeowner’s association a party to the transaction adds far more default risk than the lower payment removes.

In addition, given the nature of the current economy, many millennial buyers have student loan debt, or work as 1099 contractors instead of W2 employees, which further compounds the risk and makes it harder to qualify for a home loan.

Despite the obstacles, it is possible for a millennial to purchase a home – Millennials were actually the largest segment of buyers for the past five years according to this study by the National Association of Realtors – however, millennials are likely to face greater challenges during the approval process than prior generations.

How Can First Time Home Buyers Make The Mortgage Process Easier?

Most first time buyers, especially younger buyers, are not flush with cash and therefore need a mortgage. In order to make the application process as smooth as possible, it is essential to understand the flow of events involved and identify any potential roadblocks before they become an issue. That means starting the process far earlier than you think you need to and staying in diligent contact with your loan officer, real estate agent and attorney.

Organization is the key to closing on time. If an underwriter asks for a piece of documentation, every day you delay sending it pushes out your closing date.

Homebuying Process and Timeline

Now that we’ve outlined the issues, let’s talk about the home buying process in plain English. Please leave a comment and let us know if you have any questions, or if you find the guide helpful.

1. Gather Your Documentation

Again, if there is any magic pill for a smooth and painless home buying process it is organization. Hopefully your financial documentation is already organized, but if it’s not, the minute you think about buying a home that is the first thing you should do.

Gather everything in one safe and secure place (like your Sphynx account’s documentation vault) and begin updating it regularly.

Common documents needed for the loan application include:

– 2 years Tax returns
– 2 years W2s
– 30 days paystubs
– 2 months bank statements
– Student loan statement if you are in an income-based repayment plan

This is not an all-encompassing list. Your loan officer will help you identify any unique documents you need to suit your individual situation.

2. Identify A Location and General Price Range

You need to do some general research but don’t fall into the number one home buying trap – settling on a house too early. Speak to your financial planner or run your own figures to determine how much you can comfortably spend.

Keep your spending limit in mind as you move through the pre-approval process. You may qualify for a higher amount than expected. However, the amount you “qualify” for is not always the same as what you can “afford.” A good loan officer will not pressure you into borrowing more than you’re comfortable with, which leads us to step 3.

3. Find A Loan Officer

Settling on a lender is not about finding the lowest rate. Rather, you should choose the loan officer instead of the institution. This is someone with whom you will be sharing the most intimate details of your financial life and who may need to be an advocate and an ally for you against an underwriter.

You will want someone by your side who has the knowledge and expertise to guide you through any problems. Even everything goes smoothly, a good loan officer will clearly explain your options so you can make a well-informed decision. This may ultimately end up saving you tens of thousands of dollars over the life of your mortgage.

Start with recommendations from your friends and family, or check with your bank or credit union. Let the loan officers know you’re doing research, especially if you’re concerned about the interest rate, but don’t ask about the interest rate yet – it’s not useful until you know your mortgage credit score. This is not the same as the score your credit card company sends you for free.

Keep the contact information for your top two or three choices handy. If there is a major underwriting issue, you may need to change lenders. If you follow the next two steps, this should be a non-issue but surprises do happen from time to time.

4. Apply For A Pre-Approval

As soon as you’ve identified your loan officer you should start the pre-approval process. This means running a credit report, which will temporarily drop your score 5-10 points for each pull. This is why you interview lenders first, then shop rate between the handful of qualified options.

If your credit history is good, this decrease is not significant enough to hurt you. If such a small change affects your ability to qualify, you have other more important issues to worry about. Focus on addressing them first.

Work with your loan officer to rectify any errors or document any inconsistencies before moving on to step 5.

5. Upgrade to A Credit Approval Letter

A credit approval letter is the equivalent of a commitment letter minus having a specific property attached to it. An underwriter will review the loan file and identify any red flags.

This is a must if you aren’t a “vanilla” borrower (W2 employee with excellent credit, have enough to put 20% down + have some reserves left over, and buying a single family primary residence from a renting position).

Obtaining a credit approval letter will save time when you need it the most (at the end). It can also save money and frustration – too often the underwriter discovers an issue weeks after attorney review closes. Getting back an earnest money deposit after the review period closes can be a nightmare.

6. Contact A Real Estate Agent And Search For Properties

Only NOW should you contact a real estate agent or begin looking at homes online. Don’t commit to a property only to find out you cannot qualify for the mortgage.

Make sure your agent is familiar with the area you’re buying in. Your loan officer can probably make a strong referral if you don’t already have someone in mind.

7. Make An Offer And Submit A Good Faith Deposit

If your real estate agent has experience and is familiar with the local market, he or she can give you advice on how much a home is worth, answer any questions about the property and the area, and serve as a liaison between you and the sellers. This is the benefit of using an agent vs. dealing with the seller directly, but beware of using the same agent that represents the seller.

When you submit the contract, or shortly thereafter, you will need to submit a “good faith deposit,” usually $1000. This shows the seller you’re serious, without committing too much money. The contract should contain a contingency period for attorney review and inspections. Any good faith money is refundable if the sale falls through during this time.

8. Enter Attorney Review

Some states require the use of an attorney, others leave it up to the buyer’s discretion. New York state also requires you to retain an attorney on behalf of the lender (this can be the same attorney you use for your own representation or a separate party). Ask your loan officer for guidance if you’re not sure whether you need an attorney.

If your state does not require you to use an attorney, you may use only a title company or choose to use an attorney and a title company (in this case, the attorney will most likely pick the title company for you).

Whether it makes sense to use an attorney depends on the complexity of the contract. For example, if the seller will remain in the property after closing or the buyer will move in early, it is advisable to use an attorney. Again, ask your loan officer or real estate agent for guidance.

Your attorney will revise the contract then send it to the seller’s attorney for comments and further revisions. Once both parties agree, attorney review ends.

9. Obtain A Home Inspection

A home inspection is not the same as an appraisal. The inspection is meant to determine the structural integrity of the home, whereas, while the appraiser will make note of any health or safety issues in the report, the appraisal’s purpose is to determine the market value of the home.

Sometimes the inspection will happen prior to the end of attorney review, other times it will happen immediately afterwards. Many people choose to wait until after attorney review because once the inspection visits the property the fee is non-refundable, regardless of whether you end up purchasing the property. However, if time is of the essence it is advisable to have the inspection sooner, rather than wait.

Once you receive the inspection report you will work with your real estate agent to come to an agreement with the sellers on any repair items. Sometimes the seller will agree to repair, sometimes they will offer to credit you money toward your closing costs, sometimes they will not agree to any concessions. At that point you will need to determine whether or not you can repair the items yourself or if they are so great as to be a deal breaker.

If the seller decides to credit you any funds you will need to obtain a contract addendum and both parties will need to sign it. This should be sent to your loan officer as quickly as possible because the appraiser will need to include the pricing information in the report.

10. Start The Formal Mortgage Application Process

If all goes well with attorney review and inspection, the countdown to closing begins. You will need to review and sign a packet of initial disclosures, including a loan application, a loan estimate and other lender and loan-specific disclosures.

At this point the lender will request payment of upfront fees, typically the credit report fee and appraisal fee. Once the appraiser visits the home these fees are generally not refundable. The lender has already run your credit report during the pre-approval stage, but until the appraisal is conducted you are entitled to a refund.

This is why it’s important to start the process early. The more potential issues you address upfront the less you have to worry about after you’ve committed money,.

11. Order The Appraisal

If the appraiser finds any issues with the property that affect its safety, the underwriter may request that the sellers repair the it before closing. The appraiser must then go back to the property to document the repairs and update the appraisal, which means you will need to pay a revision fee. You can avoid this by waiting to schedule the appraisal inspection until after you and the seller have decided how you will handle any repairs.

FHA loans usually have stricter appraisal requirements, though they’ve become less so in the past few years. If you have concerns about whether something will be an issue, ask your loan officer. 

12. Lock In The Interest Rate

Timing your rate lock is an art, not a science. We could write an entire post on this topic. Work with your loan officer to decide when to lock in and whether to pay points.

13. Obtain Condo Approval (if applicable)

As mentioned at the beginning of the post, condos come with higher risk because the homeowner’s association has its own financial obligations and risks. For example, if someone sues the association, it will need to cover the costs or pass them to the unit owners.

If you are planning to purchase a condo unit, inform your loan officer right away. This is even a good thing to ask a potential lender before choosing an institution. If the bank has recently made loans for the same complex, they may be able to reuse the existing approval.

Otherwise, the lender must make sure the association has a plan in place to handle emergencies, whether that be through cash reserves, insurance coverage or a combination of both. In addition, they must also review other investor guidelines such as how many units are primary residences vs. rental properties, how many units are vacant vs. occupied, how much of the square footage is residential vs. retail space, etc.

14. Receive Your Firm Commitment Letter And Address Any Contingencies

Your commitment letter is your seal of approval from the lender on both your ability to repay the loan and the property you are purchasing. Address any listed contingencies prior to closing. The process will be fairly smooth from this point, unless something changes in your situation or an issue arises from one of the contingencies.

Ask your lender if you have any questions about what the items mean.

15. Set Closing Date and Confirm With Movers

Once you address your contingencies, you’ll receive a final commitment letter stating that you are ready for closing. All parties will agree upon a firm closing date. The date will normally be at least one week out so you have ample time to review your disclosures.

Don’t forget to confirm with your moving company. They will need enough notice to reserve a slot for your appointment.

16. Review Closing Disclosure And Set Up Final Deposit

After the date is set, your lender will issue a Closing Disclosure. This document itemizes the cost of purchasing the home, and details which have already been paid and which are outstanding. The law requires you to have a 3-day window to review the document before the closing.

There may be some small changes to the bottom line between this document and the final figures, but the numbers should be fairly accurate. If there are any major changes, the lender will need to reissue the document with a new 3-day review period. This depends on the degree of change and is rare.

Once you have the numbers you’ll obtain a certified check or set up a wire transfer for the balance of the down payment and closing costs. Don’t worry about small adjustments – you may usually pay anything under a few thousand dollars with a personal check. If you overpay, the title company or attorney will reimburse you the difference.

17. Conduct Final Walkthrough And Close!

At this point, you’re probably ready to finish up. The final walkthrough usually happens the day before or day of closing. During the walkthrough, you’ll make sure any updates or repairs are completed and the property is “broom clean.”

On the day of closing, you’ll sign your final documentation at your attorney or title company’s office. The closing packet will contain many of the documents you’ve already seen, but these are the final copies. After signing you’ll receive your key, at which point you are officially a homeowner!

What Next?

Want more tips on home buying? Check out our home buying article archive. Need help with the financial planning or home buying process? Set up a free consultation.

The information on this site is provided “AS IS” and without warranties of any kind either express or implied. To the fullest extent permissible pursuant to applicable laws, Sphynx Financial Planning LLC (referred to as “Sphynx Financial”) disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement and suitability for a particular purpose. Sphynx Financial does not warrant that the information will be free from error. None of the information provided on this website is intended as investment, tax, accounting or legal advice,  as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering.

The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. Under no circumstances shall Sphynx Financial be liable for any direct, indirect, special or consequential damages that result from the use of, or the inability to use, the materials in this site, even if Sphynx Financial or a Sphynx Financial authorized representative has been advised of the possibility of such damages. In no event shall Sphynx Financial Planning LLC have any liability to you for damages, losses and causes of action for accessing this site. Information on this website should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.


tajhizyar · March 26, 2019 at 5:42 am

interesting ! Thanks for information !

Kate Welling · March 25, 2019 at 11:56 am

My husband and I want to move out of our apartment. Moving into a single family home would be nice! I will be a lock in the interest rate when I find a home that I love.

Sharon Wilson-Smith · March 22, 2019 at 7:05 pm

You got me when you said that you can expect an appraiser to determine the market value of the house that you’re interested in. My husband and I are planning to buy a bigger house with more bedrooms because our children want to have their own rooms. We want to make sure that the house that we will buy won’t require us to pay more than its value since we want to be wise investors.

Arya Smith · March 21, 2019 at 5:39 pm

Thanks for pointing out that the agent must be familiar with the place, and we must choose those with a strong referral from the loan officer. I will share this tip with my best friend to help her hire a great agent since she plans to buy a house this year. She is on a limited budget as well that is why she needs their help since she can’t find a house that fits her budget when she researched online the past few days.

Ellie Davis · March 21, 2019 at 5:14 pm

Thank you for this advice on buying a home. My husband and I are wanting to buy our first house. I’ll have to do some research and find the best home for us.

Bob · March 21, 2019 at 3:38 pm

I love your home buying guidance. I’ll have to consider your tips so that I don’t make mistakes in a purchase. I wouldn’t want to get caught off guard in a purchasing agreement.

Silas Knight · March 20, 2019 at 2:50 pm

You’ve got great tips for buying a first home. I love how you said that it’s good to gather all the documents we need. I’ll make sure that my wife and I get all that together.

Gerty Gift · March 13, 2019 at 6:59 am

Thank you for explaining that an inspection is not the same as an appraisal. I’ve always been confused about this point, but it’s helpful to have an explanation of the differences. It makes it more clear why people recommend getting both done.

Erika Brady · March 12, 2019 at 5:11 pm

Your advice to get a home inspection in order to understand the house’s structural integrity to know of any potential issues and to check the value would be important. In order to do this, you’d probably want to research local companies that specialize in home inspections before you start looking at houses for sale. This could help you be able to contact quickly so they can check out properties you’re planning to purchase in order to make sure that it’s what you expect so you can avoid any unexpected problems after you’ve bought it.

ARHL · March 7, 2019 at 11:38 pm

Thanks for this in-depth guide on homebuying! I’m planning to have one in two years time and I agree, don’t settle too early on a house. I spent a year window shopping for houses and checking back and forth with my loan officer. These are insider’s tips, I have friends as well planning to buy/loan a house and will definitely share this article to them.

Callie Marie · February 22, 2019 at 8:12 pm

Thanks for explaining that I will need the last 2 years’ tax returns and W2s to get a home loan. My husband and I have never bought anything bigger than a car, so this is all new to us. I’ll have to search for those documents so we can start the process.

Gillian Babcock · February 20, 2019 at 10:42 pm

My brother wants to buy a home and live independently from my parents. It was explained here that when planning to buy a home, it will be best to gather all the necessary documentation for a smooth process. Moreover, it’s recommended to consult a real estate expert when planning to buy a home.

Millie Hue · February 19, 2019 at 4:31 pm

It really helped when you said that we should have a home inspection done. As you mentioned, this will enable us to have an idea if there are parts that need repair and if the buyer or seller is responsible for it. I will share this information with a friend of mine. This is because they plan on buying a single family home this year now that they have saved up enough money for three years. This will help them be informed well about the process.

Derek Dewitt · January 18, 2019 at 8:28 am

My wife and I are wanting to buy a new home this spring so thanks for sharing this. I like your point about having an inspection done. We’ll be sure to do this so we know of any health or safety issues in the home that will need to be addressed.

Richard Davis · January 15, 2019 at 6:51 am

I agree you really have to know how much you can afford and determine the right price range when you plan to buy a house. Nice blog by the way and thanks for sharing!

Gillian Babcock · January 14, 2019 at 11:48 pm

My brother wants to buy a home for his family because they are growing. It was suggested here that he should identify a location and price range. Furthermore, it’s recommended to consult a real estate professional because he’s a first time home buyer.

Gary Puntman · December 20, 2018 at 12:40 pm

I agree that one of the first things you need to do when buying a home is to figure out a general price range. That’s definitely what I’ll be doing. I am hoping to buy my first home next year. I’ll have to make sure I get preapproved first as well, like you said.

Tiffany Locke · November 13, 2018 at 7:35 pm

Thanks for the advice for first time home buyers! Your recommendations to get pre-approved as well as figure out what price range is comfortable for your budget before finding a real estate agent or looking online for homes that are for sale is a good idea. Proper preparation could ensure you understand the kind of agent would be best. This could ensure you find a professional who has the experience and skills to help you find the best house to fit your requirements as well as one that you’re comfortable working with.

Jocelyn McDonald · November 13, 2018 at 9:11 am

My husband and I want to get a home where we can start our lives together, but we’ve never shopped for a home before and could use some tips. Your article had some great advice for millennials like us buying homes, and I liked how you said that we should compile all necessary documents, including tax returns, W2s, paystubs, bank statements, and student loan statements. Thanks; we’ll keep this in mind when shopping for our first home.

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