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Should I buy a home while still paying student loans?

LaTanya Junior, Realtor March 1, 2016

  @CNNMoney

Should I buy a home while sill paying students loans?

I am a millennial with student loans which makes saving for a down payment on a house difficult. I am currently renting and feel like I may be throwing my money down the drain when I could be building equity. Should I consider a low down payment option or put off buying a home until I can afford the recommend 20% down payment? -Zach Cain, 24, Atlanta

The decision to become a homeowner is likely to be the biggest financial commitment you'll make, and many factors should be taken into account.

First, let's tackle whether it makes sense to become a homeowner. Writing a monthly rent check can seem like throwing away money, but piling mortgage debt on top of student loans can create a long-term budget crunch.

"With student loan debt, your asset is your education and no one can take that anyway," said Certified Financial Planner Travis Sollinger at Fort Pitt Capital Group. "But if you buy a house and you can't afford the payments, they will take the house."

Along with your credit score, your debt-to-income ratio is one of the most important numbers banks look at when issuing a loan. This number helps lenders determine your ability to repay.

To determine your ratio, add up all your monthly debts, including car, student loan and credit card expenses and the potential mortgage payment, and divide it by your gross monthly income. In order for a mortgage to be backed by the government, this number can't be higher than 43%.

Low mortgage rates and high rents make buying an attractive option, but you should be ready to put some roots down. If you're planning to stay in a home for at least two years, buying is more financially advantageous than renting in 70% of housing markets, according to a recent report from Zillow.

Hey Millennials: What's your most pressing money question?

Now let's weigh your down payment options.

Down payment size impacts the total cost of a loan. A bigger down payment means you're borrowing less from the bank, which lowers monthly payments. It can also lower your loan's interest rate, reducing how much you'll pay in interest over the life of the mortgage.

The average down payment on a conventional 30-year mortgage was 17.5% in the fourth quarter of 2015, according to LendingTree.

But there are other options if you don't have that much cash sitting around. The Federal Housing Administration backs mortgages that require as little as 3.5% down.

Putting less down will likely lead to higher interest rates on the loan, but with interest rates still so low, now could be the time to pounce. "Given the current environment, it's not going to be that big of a difference," said Sollinger. "It adds up over 30 years, but it's better than continuing to rent for the next five to 10 years. If you itemize, the cost of that money is pretty darn cheap."

Keep in mind that if you don't put 20% down, there's a good chance the lender will require private mortgage insurance. These premiums protect the lender if you miss a payment.

Related: What will your mortgage payment be?

When figuring out how much money to put down, don't wipe out your savings account, advised Bill Van Sant, certified financial planner at Girard Partners. It's a good idea to keep a cushion to cover things like closing costs, moving expenses, home insurance and furniture shopping.

But the decision to buy a home isn't all about money. Becoming a homeowner comes with a lot of responsibilities: You're in charge when the dishwasher stops working, the basement floods, or there's an uninvited critter house guest. Make sure you're willing to handle those responsibilities as well.

Hey Millennials: What's your most pressing money question? Ask us and you could be featured in an upcoming story on CNNMoney. Please include your name, age, and city.

The Top 10 Downtowns: Did Your City Make the Cut?

LaTanya Junior, Realtor March 1, 2016

By Clare Trapasso

Thriving nightlife? Check. Walkable city streets? Check. Arts scene? Check.

The results are in, and the small to midsize city that boasts the most happening—yet still reasonably affordable—downtown of 2016 is historic Alexandria, VA, according to a recent report. Go Alexandria!

Livability.com, a real estate research and education website, looked at more than 2,000 cities with populations under 350,000 and analyzed their vacancy rates, the new developments going up, and the influx of people moving in (along with the cultural and affordability criteria above) to see just how America’s Main Streets stacked up.

“It shows [you can live in] a great downtown without having to be in a huge metropolis,” says Matt Carmichael, editor of Livability.com. “It can be more affordable than some of our larger cities, while keeping a lot of the same amenities and quality of life.”

Let’s take a stroll through some hot cities, shall we?

1. Alexandria, VA

Alexandria was crowned the top downtown of 2016 due to its famously charming mix of shops, award-winning restaurants, picture-perfect street scenes, and low crime. The close proximity to Washington, DC, didn’t hurt either.

The town also has a historic pedigree to match all that Southern glamour. It was occupied by Union soldiers during the Civil War, and some of its more notable residents and habitués include George Washington, whose Mount Vernon estate was a just a few miles away, and Confederate Gen. Robert E. Lee, who moved to Alexandria as a boy.

“We’ve got this rich heritage,” says Claire Mouledoux, a spokeswoman for Visit Alexandria, a group created to promote the city. “But day to day, this is a place where people live, work, and play.”

The city is particularly fond of its four-legged, tail-wagging residents, says Mouledoux. Every spring through fall, downtown eatery Jackson 20 hosts a Doggy Happy Hour, where pups can chow down on treats while their owners socialize and dine on more sophisticated grub.

But history—and doggy dates—don’t come cheap. The median home price for the whole city of Alexandria is $475,000, according to realtor.com®.

2. Santa Monica, CA

The amusement park on the Santa Monica Pier is a huge draw for tourists.

This beach city, known for the tourists who flock to the big and old-fashioned amusement park on its pier, also has a three-block pedestrian promenade packed with restaurants, shops, and street performers. Some of them aren’t even mimes! It’s also one of the most walkable—and bikable—cities on the list, according to Livability.com.

The city may be a fun place to visit, but less fun for the bank accounts of those seeking to move there. The median home price in the Los Angeles suburb is a staggering $2 million. Wow!

  1. Greenville, SC

Greenville’s revitalized downtown features artist studios and awesome park renovations.

The city’s thriving downtown scene, in the Baptist Bible Belt, has been a long time in the making. Over the past few decades it’s been transformed from a fading downtown to a bustling Main Street with a European vibe chock-full of cute boutiques, acclaimed restaurants, and even an excellent whiskey distillery. Take that, Kentucky!

“Seven days a week, morning to night, there are people walking and enjoying the shopping and restaurants,” says Diane Lange, a real estate agent at Re/Max Realty Professionals in Greenville, SC.

The area is also “exploding” with new condos, she says. Two-bedroom units can start in the high $300,000s and run well above $800,000, she says.

However, the median home price in this Southern city is a bit more affordable at $225,000. OK, now we’re talking!

  1. Bellevue, WA

Bellevue’s downtown is booming in both population and coolness.

With new high-rises, food trucks, and sidewalk bistros—on top of a plethora of shops and entertainment venues—the projected growth of the city, which sits right across Lake Washington from Seattle, is on a steady incline.

The median home price in Bellevue is a whopping $1.3 million, according to realtor.com. But that is mostly in the downtown area, says Sandi Tampa, a real estate broker at Windermere Bellevue Commons.

In fact, billionaire Bill Gates lives in the nearby town of Medina.

“Prices have gone up tremendously” over the past few years, she says. “It has everything to do with job growth. It’s a lot of tech jobs. Our economy is booming.” So are home prices, apparently.

  1. Pittsburgh, PA

Pittsburgh fell from the top slot in last year’s rankings, but it still held on to a place on the list.

The old steel town tumbled from its No. 1 spot in last year’s rankings due to its higher residential vacancy rate, but the place is still going strong. The historic downtown’s dining, entertainment, and arts scene remains popular with nearby students and workers, according to Livability.com.

And the median home price in this Northeastern city is a very affordable $149,900. Sweet!

  1. Boise, ID

Boise’s cool factor has been on the up and up, just like the many high-rises being built in its downtown.

The Midwestern city of Boise may not be top of mind for having one of the country’s coolest downtowns. But the city boasts an art museum, performance venues, as well as an array of trendy spots for dinner and drinks.

“The city has been really focused on making downtown the place to be,” says Leigh Wilson, a real estate agent with Keller Williams affiliate Boise’s Best Real Estate. “Boise’s extremely clean … and there’s lots of fun restaurants.”

Skiing and golf junkies like that Boise is just about 15 minutes from the slopes and the courses, she says.

And the downtown is also seeing a lot of new condos going up—which can range anywhere from the $300,000s to upward of $1 million, Wilson says.

The median home price for the whole city of Boise is $248,972.

  1. Tempe, AZ

Tempe’s downtown skyline spotlights why this city made the top 10.

The new high-rises, tech firms, and restaurants that have been popping up in this Southwestern city helped Tempe snag a spot on the list. Other features, including Tempe Lake and its array of cultural and sporting venues (any Arizona State Sun Devils fans out there?) are just icing on the cake.

Median home price: $299,500.

  1. Plano, TX

Plano has really taken off in recent years.

This once-sleepy city has kicked it up a few notches with new offices and residents moving in attracted by shop and restaurant openings as well as seasonal events such as free outdoor shows. No, the median home price of $375,000 in this Texas city isn’t cheap, but you sure get plenty for your money. There’s even a light rail station, put in place more than a decade ago, that connects the place to Dallas.

  1. Colorado Springs, CO

In the shadow of Pike’s Peak, an urban mecca grows in Colorado Springs.

Over the past few years, the art- and park-filled Colorado Springs has been taking off. The city boasts farm-to-table restaurants, a mix of historic and contemporary buildings, and tons of natural beauty.

Bonus: Outdoors aficionados will enjoy the nearby rock climbing, whitewater rafting, and mountain biking opportunities.

The best part? The median home price in the city is still affordable at $284,900.

  1. Evanston, IL

Evanston, once known strictly as a college town, is widening its appeal, big time.

This college town (home of Northwestern University) has gone from dead after dark to, well, hip in the past decade or so.

Apartments and condos have cropped up in the downtown as have new breweries and notable restaurants in this suburb of Chicago.

And the median home price? A mere $309,900, according to realtor.com.

Source: www.realtor.com

 

Good News for Buyers: More New Homes Are in the Pipeline

LaTanya Junior, Realtor March 1, 2016

By: Clare Trapasso

More homes are sprouting up across the United States—and the sound of those jackhammers and excavators at work should be music to the ears of aspiring home buyers growing ever more frustrated by the dearth of houses on the market.

Builders began construction on 1,178,000 new homes across the country last month, up a staggering 30.9% from February 2015, according to the seasonally adjusted numbers in the U.S. Department of Commerce’s monthly new residential construction report. The number of new homes under construction also rose 5.2% from January.

“It means that home builders are responding to the demand out there,” says Jonathan Smoke, chief economist of realtor.com®. “We don’t have enough supply of homes to keep up with the increase” in eager buyers.

The number of newly authorized permits, which builders must secure before starting construction, was up 6.3% from the previous year, but Smoke is concerned that the 3.1% drop from January to February may signal a slowdown.

“That’s not a good sign,” Smoke says. “We need more construction.”

He also notes that despite the rental crunch, the number of permits issued for new apartment buildings with five or more units dropped 9.1% from January and was down 9.7% from the previous year.

“It doesn’t bode well for rent increases slowing down any time soon,” Smoke says.

Construction is slower than many would hope, as developers are struggling to find available property and the labor needed to construct new homes.

Because of this, it’s more cost-effective for builders to focus on luxury housing, since only about 10% of first-time home buyers purchase a new residence, says David Crowe, chief economist at the National Association of Home Builders, a Washington, DC-based trade organization.

Most of the new-home buyers are growing families trading in their existing houses for larger, more modern ones, he says.

Builders haven’t been catering to first-time buyers because they often can’t afford the new construction. But Smoke believes that is going to have to change.

“First-time home buyers make up roughly 40% of the market,” he says—and so the growth in the market is in demand for more affordable homes.

New houses are sprouting up in some parts of the country at higher rates than others.

The South led the way with the most work started (but not completed) on new homes, at 615,000, last month, according to the report. That was a 20.8% increase from February 2015.

“There isn’t any land left to build on” in Atlanta’s city limits, says Jen Engel, a real estate agent with Nest Atlanta eXp Realty. “We’ll see a lot of demolition. They’ll knock down a house, and they’ll put up a new one or maybe two.”

Demand for these brand-spanking-new homes are high, but younger couples can rarely afford them. They’ll move into recently remodeled or rehabbed abodes instead, she says.

The amount of new construction begun in the South was followed by the West, where 309,000 homes began rising from the earth, up 27.2% from the prior year. Builders began work on about 181,000 new residences in the Midwest, up 77.5% from a year earlier.

The fewest residences were rising in the Northeast, where there often isn’t as much land available for new developments. Construction began on about 73,000 homes last month. That was still a significant 58.7% hike from the prior February, but down 51.3% from January.

In the Hartford, CT, region, buyers are racing to scoop up attractively priced and well-staged homes within 20 to 45 days of going on the market, says real estate agent Wayne Horgan of Coldwell Bankers Residential Brokerage in Wethersfield, CT. That’s compared to six to 12 months a few years ago.

That’s partly due to having some “towns where there is no land available for building and the lots are quite small,” he says.

Nationally, 1,016,000 new residences were completed last month—good news for home buyers looking for a place to call their own, according to the report. That represented a 4.2% dip from January, but still a 17.5% year-over-year jump.

Builder confidence in the market for new single-family residences remained steady in March, according to the monthly National Association of Home Builders/Wells Fargo Housing Market Index. Nearly 300 builders were surveyed for the report.

Source: www.realtor.com

Clare Trapasso is the senior news editor of realtor.com. She previously covered finance for a Financial Times publication and wrote for the New York Daily News. Clare also teaches journalism at a local college, loves food festivals and bike trips, and enjoys playing with her dog.

Millennials in the Burbs? You Won’t Believe the Latest Home-Buying Trends

LaTanya Junior, Realtor March 1, 2016

by: Clare Trapasso

What’s a millennial pushing 30 to do? Apparently, leave the fun, the fantasy, the pace, and the possibilities of big-city living far behind and buy a home … out in the burbs.

Just 17% of buyers under the age of 35 closed on urban residences, down from 21% a year earlier, according to a recent National Association of Realtors® report on generational trends in home buying and selling.

The report looks at housing data from July 2014 through June 2015 and income data from the end of 2014.

The luster of urban life may be fading—for some, anyway—due to skyscraper-high prices in top markets. Suburbs exerted a strong pull on buyers of all age ranges. About 51% of millennial home buyers scooped up residences in the suburbs or a subdivision compared with 58% of Generation Xers (ages 36 to 50); 51% of baby boomers ages 51 to 60; 53% of boomers ages 61 to 69; and 42% of the Silent Generation (70 and older).

“The price of [city] homes is much too high,” says Jonathan Smoke, chief economist of realtor.com®. In contrast, “the suburbs offer millennials [and everyone else] more affordable homes.”

Millennials make up the largest share of home buyers at 35%, according to the report. That should come as no surprise, given the unprecedented size of their generation (83 million) and the life changes that are motivations for buying a home (nearly two-thirds of millennial buyers are married, while almost half have children living with them—and are therefore probably desperate for more space).

Who’s buying what?
Who's buying what?
Who’s buying what?

The dreaded down payment

But the most challenging obstacle for aspiring home buyers of any generation—beyond finding their own personal palaces, securing a mortgage, and wading through reams of paperwork—is cobbling together the dreaded down payment.

“It’s often the largest financial challenge to a first-time home buyer to come up with all the funds that are necessary,” Smoke says.

More than half of millennials, 53%, who said saving up for a down payment was the most difficult part of buying the home of their dreams blamed student debt, according to the report. And almost a quarter, 23%, of them relied on family assistance to come up with the cash. “Hello, Mom…?”

But that family help might not be what it once was, says Donna Butts, executive director of Generations United, a Washington, DC–based group that advocates for intergenerational policies and practices at the national level. Parents these days may be tapped out from financing their children’s college tuition—as well as trying to help them pay down their student loan debt.

And these kinds of bills may lead more young people to live with their families longer as they save up for a home of their own, she says.

They also may be more than just a little leery of plunking down such a huge chunk of change after living through the Great Recession and some turbulent stock markets, says Jason Dorsey. He’s the chief strategy officer at the Center for Generational Kinetics, a millennial research and marketing firm based in Austin, TX.

However, it’s not just millennials struggling to save up that 20% down. About 44% of Generation Xers and 36% of boomers 60 and below who said that saving up for a down payment was the most difficult part of the home-buying process blamed being saddled with credit card debt, according to the report.

Another issue for those of any generation seeking to move into their own homes: how much they’re paying out each month in rent—which doesn’t leave too much left over to go into the trusty savings account, realtor.com’s Smoke says.

Why move to the suburbs?

There also just simply aren’t enough homes on the market that the average buyer can actually afford, particularly in high-priced urban centers, Smoke says.

But cheaper prices at the pump make it less expensive for drivers from the burbs to commute to work in the city.

And those communities, known for their strip malls and manicured lawns, are also becoming, well, more urban. As more former urban dwellers move in, more cafes, trendy boutiques, and Whole Foods stores are going up. And the Main Streets are becoming more walkable.

Who’s buying the biggest homes?

Once they get to those suburbs, Generation Xers are the most likely to want to trade up to larger residences as their families expand.

Despite Gen Xers often bringing home more bacon than they did when they were just starting out, it can be just as hard for them to come up with the pan to fry it in—or rather the down payment needed to score a larger home, says Smoke. That’s because the housing market is just starting to recover, so they haven’t been rewarded with the big price bumps or have the home equity that would provide them the extra cash needed for that down payment.

“They are most likely to have children, and they’re increasingly starting to think about the potential of having their [elderly] parents move in with them,” he says.

Gen Xers snapped up the largest homes, at 2,200-square foot, for about $263,200, according to the report. Meanwhile millennials typically bought 1,720-square-foot residences for $187,400.

Boomers ages 51 to 60 scooped up 1,960-square-foot houses for $239,000, while boomers ages 61 to 69 purchased 1,950-square-foot houses for $220,000. Members of the Silent Generation typically bought smaller, 1,800-square-foot homes for $209,100.

“Older boomers are trying to downsize,” Smoke says. “The homes that the Generation Xers are leaving are the homes that the older millennials are interested in in the suburbs.”

Source: www.realtor.com

Clare Trapasso is the senior news editor of realtor.com. She previously covered finance for a Financial Times publication and wrote for the New York Daily News. Clare also teaches journalism at a local college, loves food festivals and bike trips, and enjoys playing with her dog.