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How To Buy Your First Abode

Grappling with stagnant wages that can barely cover exorbitant rents and student loan payments, Maria Roybal, is moving back home after college into her parents’ basement was fine — until the third year. That’s when they asked her to start paying rent.

So Roybal, then a kindergarten teacher for the Public School system, accelerated her journey to homeownership.

“They charged me $500 [a month]. As soon as they started doing that, I saw my money leaving and I was like, ‘I want the money to be going toward something. I want equity. I want value,’ ” she said. “I think that was kind of the kick in the butt to get me to do something about it.”

Grappling with stagnant wages that can barely cover exorbitant rents and student loan payments, many millennials are having a hard time financially in the Washington area and are finding themselves unable to get by without parental help.

According to data from the U.S. Census Bureau’s 2016 American Community Survey, the median income for millennials in the District is about $60,000, but median rents for the District typically rank as some of the highest in the nation. Zillow’s Market Overview data from August shows that median rents in Washington are the seventh highest in the nation at $2,531 per month.

On top of that, 83 percent of millennials interviewed in a 2017 survey by the National Association of Realtors said they think their student loan debt has delayed their ability to buy a home.

The idea of leaping from living under their parents’ roof to one they own can seem daunting for many millennials. But Roybal illustrates that with an aggressive savings approach, a willingness to learn all aspects of the buying process and a little creativity, homeownership can happen.

“I found this building and knew this was where I wanted to be,” she said. “I was trying to make other things work and finally I just said, ‘Look, this is what I really, really want.’ A unit became available and we did it.”

Roybal’s case is hardly unique. A Pew Research Center report in 2017, based on the Census Bureau’s Annual Social and Economic Supplement, showed that 15 percent of 25- to 35-year-olds were living in their parents’ home — a five percentage point increase from the previous generation in 2000.

Stashing cash…

The first lesson for people like Richardson is to concentrate on the bigger picture — working to establish their independence by buying their own home — rather than on the temporary day-to-day indignities of being under their parents’ noses.

“My social life was not at the house. I would go out and meet friends,” Roybal said, adding that she had to occasionally look after her younger brother. “I spent a lot of time at work because it was my first few years of teaching. A nice part of [living at home] was teachers are spending all this time cutting lamination and things like that, and I had my mom there to do things like that with me.”

Alexanna Soto is still living at home while she works as a cardiac nurse and takes classes toward a nurse practitioner degree. “I still have my room from when I was 12,” Soto said. “I have more freedom, but I still got to respect the rules. If it gets to midnight I start getting the texts, ‘When are you coming home?’ ”

The dynamics of a housing market with low inventory and high demand can be particularly discouraging for millennials, said Melanie Sommers, a real estate agent.

The number of homes for sale in most regions has decreased every month for the past 27 months, according to the MLS, the multiple-listing service. Low inventory in high-demand areas tends to spur bidding wars and higher prices. In September, the median home price was $445,000 in the region and $568,500 in the District, respectively up from $430,000 and $550,000 a year ago.

Sommers specializes in working with first-time buyers and frequently has clients who are shocked at how expensive homes are. “When they come to me they have done some research on what houses cost,” Sommers said. “They don’t realize what that means in cash required. I tell clients always start with a monthly payment in mind and then figure out how much you want to put into the transaction. Don’t drain your bank account.”

She added: “The Suze Ormans of the world would say about a third of your income [for housing] is conservative. Well, in urban areas we pay a little bit more to live. If you start to get to 35 or 40 percent don’t freak out. Especially if you’re not at a point where you have to pay for day care yet.”

Considering that in the rental market she could have been charged three or four times the amount she paid her parents, Roybal was able to stash away a significant amount of money for her down payment.

“I was always saving money, and I had side jobs,” she said. “I worked in the summer, and during the school year I ran after-school programs.”

Soto describes her savings approach as being “a little bit strict.” During the semesters she isn’t in school she puts 50 percent of her paycheck directly into savings, and months when the tuition bill is due she still aims to save at least 10 percent of her paycheck.

“I’ve saved up maybe [$30,000], $40,000, so I think I’ll be able to afford a down payment,” Soto said. “[It’s] just because I live with my parents I have this money. If I didn’t, there’s no way I would even be thinking about it.”

Real estate agents typically warn first-time buyers not to put the cart before the horse in rushing the search process.

Rental income…

When it comes to planning for a mortgage, “get preapproved [for a mortgage] before you start looking,” said Deb Levy, senior home lending adviser at JPMorgan Chase. “A lot of times you’re going to see something, you’re going to fall in love with it, you’re going to mentally move your furniture in and then you’re going to realize you’re not ready to [act] on it and you end up chasing the one that got away.”

Another common mistake, according to Sommers, is placing too much faith in online calculators to estimate a monthly payment. “You have to come down to the penny. If you’re off by a hundred bucks for your monthly payment, $100 is $22,000 in purchasing price.” That could make the difference between a desirable neighborhood and a less desirable one, she added.

Roybal looked at homes extensively for six months but couldn’t find anything that fit her needs and her budget. Homes were either too far away from her workplace or required expensive upgrades.

Finally, a move-in ready two-bedroom unit in a desirable condominium complex went on the market. But despite her savings, the $427,000 asking price was still outside her budget.

So Roybal turned to her parents again. In addition to providing a temporary place to live, more and more parents also are offering direct financial help.

According to the annual National Association of Realtors Home Buyer and Seller Generational Trends survey, 23 percent of respondents age 37 or younger used a financial gift from a family member or friends to help finance their home purchase, more than twice the percentage of any other age group.

Sondra Tillman, who works as a sign language interpreter, didn’t live in her parents’ basement, but she did borrow $10,000 from her father to come up with a down payment for a rowhouse priced at $525,000. She qualified for a first-time buyer mortgage that required a 3 percent down payment. “I knew that I wanted to buy and I had been planning for it and saving,” Tillman said. “He helped subsidize because even 3 percent can be really daunting.”

To make her numbers work, Roybal said she and her dad bought her condo together. “Technically, my dad bought it, and I hold my mortgage through him,” she said.

With Roybal’s down payment of approximately $30,000 and an interest-based mortgage with her father, the unit is in both their names, and a roommate pays the other half of the mortgage directly to Richardson’s father.

“Part of doing it with my parents was there needed to be some kind of income for them, which is the roommate,” Roybal said. “I could have bought something less expensive. But I chose to buy something more expensive, and I’ve had a roommate ever since to help with the payments. In this area, you need to have a roommate in order to afford where I want to live.”

Roybal’s condo fees are around $600 a month, which she splits with her roommate. The fees include two parking spaces, two storage units and all utilities except electricity. “It’s nuts. It’s really expensive,” she said. “Condo fees are just as important to look at as the [sales] price.”

Tillman has a similar arrangement.

Her 1,184-square-foot rowhouse is divided into two units. Until moving in with her fiance this summer, Tillman lived in the 600-square-foot, two-bedroom unit upstairs and rented out the lower level of her rowhouse on a long-term lease for $1,800 a month.

She listed the second bedroom in her upstairs living space on the short-term rental site Airbnb. With the extra income, she was able to repay the $10,000 loan from her father within six months of purchasing the house. Since moving out, she has raised the rent to $1,850 and rents out her old bedroom to a family friend who helps manage the Airbnb activity in the upstairs unit.

For her part, Roybal said that even though the process was difficult, she’s pleased with the outcome.

“I realized this is actually the place I had picked out years ago, but I [thought] I would never be able to afford it,” Roybal said. “Doing it the way we’re doing it now, it works.”