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Young home buyers biding their time

Scarce jobs, high down payments, and low credit scores can work against today’s favorable buying conditions.

Nick Ut/Associated Press/File 2012

Scarce jobs, high down payments, and low credit scores can work against today’s favorable buying conditions.

WASHINGTON — Despite reports to the contrary, young adults haven’t given up on the American dream of homeownership. They are just biding time.

As many as 93 percent of millennial-generation renters plan to buy a home someday, according to a recent (albeit self-serving) poll by the real estate­ website Trulia. Yet in today’s housing market, characterized by still-subdued prices and record low mortgage rates, only one in three buyers are first-timers.

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Maybe that’s because some millennials — generally speaking those in their 20s to early 30s — don’t have the jobs that qualify them for mortgages, or because they are taking time to accumulate down payments, or because the ongoing wave of foreclosures frightens them. Or maybe, as one millennial told me recently, “We just don’t know what the steps are, or how to start.”

Will their dallying cause them to miss a sweet spot in a promising market? Nationally, home prices do seem to have bottomed. According to the Standard & Poor’s Case-Shiller index, prices rose steadily for the six months ending with September, the latest month for which S&P has published data. And mortgage interest rates remain very near record lows, with 30-year fixed-rate loans averaging 3.45 percent, according to Bankrate.com.

But that doesn’t mean you have to race into a life-changing purchase. Rates could stay low for a while. The Federal Reserve expects to hold interest rates low until the unemployment rate falls below 6.5 percent, which the Fed doesn’t expect until 2015.

Then there are home prices. It is scary to think that while you’re trying to amass a down payment, the price of the house you want is outpacing your efforts. But prices of existing homes rose an average of only 3.4 percent a year between 1987 and 2009, according to the Case-Schiller index. Prices only slightly outpaced inflation.

Surely, over time, prices will rise, and they may even rise more quickly than usual as the housing market recovers further. But a year or two of typical inflation shouldn’t matter.

For example, today’s median price is $184,000, according to the National Association of Realtors. Assuming a 10 percent down payment that would require about $21,000 in down payment and closing costs, and a monthly payment of $789 for 30 years at 3.25 percent interest.

If that home appreciates 4 percent in a year, it would cost $191,360, and you’d need slightly less than $22,000 in closing costs and a down payment. Your monthly payment would be $820. Not quite as cheap, but not insurmountable.

So if you would like to buy, it’s a good time to start moving. Here are some first steps to take.

 Get, improve, and protect your credit score. Buy a copy of your credit report from MyFico.com — it’s the one that lenders tend to use. If your score is less than 740, find out how you can raise it: paying down a credit card balance, for example. If your score needs work, monitor it regularly at a free site like CreditKarma.com until it’s high enough to make you attractive to a lender.

 Save, save, save. Buying a house is like having a baby — you open the checkbook and start handing out money.

 Learn about mortgages available from the Federal Housing Administration. They are popular with first-time buyers, given the 3.5 percent down payment, but carry extra fees.

 Figure out what you can afford. Online calculators abound, but there’s a simple one at the Zillow website. (http://www.zillow.com/mortgage-calculator/house-affordability/).

 Look at lots of houses, and figure out what you care about. Write a short list of must-haves — a school district, porch, family room, short walk to shopping. Realize that almost anything in a house can be changed except the location, but it costs money.

 Buy when you’re ready. Start looking with what’s called a buyer agent, who will represent only you.

The writer is a Reuters columnist. The opinions expressed are her own.
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