11 Steps to Becoming a Homeowner

Home ownership is the financial white whale for millennials. We desperately want to escape the useless money dump of renting and wistfully add home ownership to our vision boards every year. But in the back of our minds, it can feel like a lost cause.

That’s because millennials only own 4% of American real estate. At the same age, baby boomers owned 34%. The haters will say that we are dismantling the nuclear family, have commitment issues and hate owning things. And maybe some of those things are not not true, but the heart of the matter is much more simple: we just can’t afford it.

Millennials and Homeownership

Renting is expensive, even for small, not-so-great places. It’s easy to feel kind of shitty when you’re sitting in a 600-square-foot apartment at the age of 30 wondering how anyone can afford to buy a home in this economy. Especially when your parents remind you constantly that they owned their own home and had two kids at your age.

But today’s first-time home buyers (aka millennials) will pay 39% more than first-time homebuyers did nearly 40 years ago. Many millennials want to buy homes—for more space, to start a family or just to live in a nice neighborhood.

But a down payment on a nice home—heck, even just an okay home—is steep. So steep, in fact, that 27% of millennials buying a home in 2020 expected to get a loan, inheritance or gift from family to help make their down payment. *checks ancestry.com for potential donors*

Benefits of Homeownership

So what is the big deal about owning a home? Well, there are several financial benefits to homeownership that make it worth the painfully large investment.

• Stable expenses – Having a fixed-rate mortgage keeps your monthly expenses stable over the 15- or 30-year term of your mortgage. On average, rent increases 2–3% each year to adjust for inflation. If you’re planning to keep your home for at least five years, a fixed-rate mortgage allows you to avoid steep annual increases in rent.
• Tax benefits – Owning a home offers tons of tax deductions. Mortgage interest, property taxes, and home expenses can all count as deductions to give you a bigger return when you file your taxes each year.
• Build equity – Equity is the difference between what you owe on your mortgage and what your home actually costs. As you pay off your home loan and your home value increases, you build equity, which can be used for a downpayment on your next home or for major home improvements.
• A good investment – Both homeownership and renting are expensive these days, as the cost of living continues to increase. But renting does not have the same ROI as owning a home. Apart from having a roof over your head, the benefits of renting are few. However, paying a mortgage allows you to build wealth over time, meaning that it’s a sound investment for your financial future.

Steps to Becoming a Homeowner

So how does one cross the coveted threshold from renting to owning? There is no magic, snap-your-fingers plan (unless ancestry.com does in fact surface an extremely generous rich aunt), but these 11 steps will help you set realistic goals, save accordingly and make a smart investment.

1. Establish Your Budget 💵

First up in the steps to becoming a homeowner: budgeting. Whether you’re buying a home on your own or with a significant other, the first step is to establish your budget. Consider how much you can afford each month, factoring in all other monthly expenses. Look into how much homes cost in your area. Sites like zillow.com offer easy monthly budget estimates based on your down payment and home cost, which can give you a realistic idea of what is within reach.

2. Save for Your Down Payment 💰

Your down payment is a portion of your home cost that you pay up front to your lender. Typically, it’s recommended to put at least 20% down on your first home to avoid paying private mortgage insurance (PMI). However, in more expensive housing markets, 20% is unattainable. Many lenders allow first-time homeowners to put as little as 1% down. While that sounds amazing, it’s important to keep in mind that the less money you put down, the more you will have to pay each month toward your mortgage and PMI.

3. Improve your Credit Score 💳

When applying for a home loan, mortgage lenders will look at your credit score to determine how much money you qualify for. It’s a good idea to run your annual free credit report. Make an extra effort to pay down your credit cards and be careful not to fall behind on any monthly payments, including your student loans!

4. Talk to a Mortgage Lender 🏦

Meet with a mortgage lender (or a few!) to discuss the different types of home loans, mortgage rates and what options make the most sense for you. Shop around to make sure you have a mortgage lender you love—after all, you could be stuck with them for the next 30 years. No pressure!

Pro tip: credit unions are a smart option for first-time homebuyers because they offer lower interest rates on loans and more forgiving loan requirements. You can use our tool here to easily narrow down your options.

5. Get Pre-Approved for a home Loan ✅

This step might feel daunting, but it’s important to get it out of the way. Before officially starting your home search, get pre-approved for a mortgage. You will need to provide a summary of your financials including proof of income, credit score and debt. This is especially important in competitive housing markets, because sellers prefer pre-approved buyers. It’s better to get approved upfront than risk losing your dream home to another buyer while waiting for approval.

6. Create a Need vs. Want List 📋

As you take these steps to becoming a homeowner and wait to get pre-approved by your mortgage lender, it’s a good idea to make a need vs. want list. This can help narrow down your home search and guides your realtor in finding the best bang for your buck. Think about what you can’t live without and what would be nice to have. How many bedrooms and bathrooms do you need? How important are school districts? How long is your commute to work? Is a pool a deal breaker? Do you need lots of windows for that sweet, sweet natural light? Before meeting with your realtor, come up with a clear list of needs and wants for your ideal home, so you can clearly communicate your expectations.

7. Find a Real Estate Agent and Start Shopping 🥳

This is the fun part! You can interview several real estate agents or ask friends for recommendations. Make sure your realtor is kind, available and experienced. Narrow down your home search, and let your realtor do the legwork to find the best home for you within your price range. When you find one you love, your realtor will help you negotiate.

8. Inspections 🧐

Now it’s time for a house inspection and a termite inspection! A house inspector will tell you about anything that needs to be fixed before you move in. From there, you and your realtor will send the list of Things that Need Fixing to the seller and try to get them to fix as much as possible on their own dime. The termite inspector will tell you if your house needs to be treated (which MUST happen before you move in if you have termites). You’ll pay for both inspections, but the seller usually pays for any termite treatment needed.

9. Financing, Negotiations and Earnest Money 🤑

Once the seller has accepted an offer and you’ve signed a contract, you’ll chat with your mortgage lender to find the best loan for you, and you’ll be given more exact numbers about your down payment, monthly rate, etc. Then you’ll put down what’s called “earnest money.” This basically protects the seller in case you decide to back out. But don’t worry—the amount is applied to your down payment and closing costs once you close.

10. Repairs, Insurance and Bills 🛠️

As you wait for the seller to make any needed repairs, it’s time to find homeowners insurance, start scheduling address changes and setting up utilities. Believe me, you’ll want to have your utilities scheduled in advance to turn on the day you move in, unless you want to live without running water for a week.

Your mortgage lender should also work with the lending company to, preferably, have your insurance, property taxes and everything except utilities included in the loan. That way, you just have to worry about one payment (other than utilities) per month. You don’t want to be surprised at the end of the year when you get a letter from your city asking you to fork over hundreds or thousands of dollars in property taxes. 🤮

11. Move-in Day 🏠

Once you’ve completed all these steps to becoming a homeowner and made it to move-in day, you’ll head to the title company with your realtor to start signing the paperwork. There will be a lot of it, but once you’re done, you’ll be handed the keys, probably take a picture with your realtor in front of the title company sign and then head to your new home to bask in all its empty-but-soon-to-be-furnished glory.

Pro Tip:

If you’re tempted to not use a realtor, take our advice: use a realtor. They’ll take care of negotiations so you don’t get screwed, and they’ll walk you through all the steps like earnest money, appraisals, etc. and they’ll hold your hand through all the legal jargon and paperwork. We promise it’ll be a lot less stressful having an expert on your side.

Credit unions offer low interest rates on home loans. Plus, they have more forgiving requirements for pre-approval.
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