Mortgage

Full Information to Shopping for a House in Your 20s (2021)

The Ultimate Guide to Buying a Home in Your 20s

In your 20s, buying a home may seem like a pipe dream. You may have just graduated, dealing with student loan debt, and doing all of this on a starting salary with no raise in sight.

While home buying can seem daunting, millions of millennials have. Millennials are the largest group of homebuyers in our country today – and many buy homes on their own long before marriage or children are even on the radar.

Now even younger homebuyers are joining them as Generation Z grows up.

But is this the right step for you too? More importantly, can you afford it? Let's break it open.

Check your eligibility as a first-time home buyer. Start here (10/28/2021)

In this article (continue to …)

> Related: How to Buy a Home Without $ 0: First Time Home Buyers

Benefits of buying a home at age 20

The benefits of home ownership are enormous – especially when you are younger. A home is a long-term investment and when you are younger you will have more time for that investment to grow.

If you stay in your new home long enough, you can build up serious wealth.

Real estate assets can also be flexible: You could:

Sell ​​the house for a profit later, convert it into an income-earning rental when you're ready to move down the line!)

Owning a home also helps from 20, because it means:

Constant, Reliable Payments – No more annual rent increases from your landlord. More control to customize the property – forget about "accent walls". Paint, modernize, renovate, and do whatever you want when you own your homeHigh Credit – A mortgage loan at a young age can help you build a solid credit history, which means good credit later on and plenty of financial opportunities Tax benefits – home ownership brings several potentials Tax benefits that can lower your tax burden and increase your annual refund

You can also save on monthly housing costs. In most major cities, rents have skyrocketed in recent years, while average mortgage payments are often the same as or lower than rent in many regions.

Finally, you have the option to rent your property on Airbnb or similar websites for extra cash if needed.

How Young is Too Young to Buy a Home?

There is no right or wrong time to buy a home. Legally, at 18 you can buy and own real estate, but that doesn't necessarily mean it's the right move for every 18-year-old.

A house is a huge and expensive purchase that you will have to live with for years or even decades of your life.

At the very least, you should wait until you have a steady income, stable job, and decent credit score. That way, you can get an affordable mortgage loan and cover the mortgage payment month after month while you are at home.

Minimum requirements for buying a home

Buying a home isn't as difficult as many first-time buyers think, especially if you meet the minimum requirements for a home loan.

Remember that the guidelines for buying a home are the same regardless of age. Whether you are 18, 25 or 55 years old, mortgage lenders hold you to the same standards for income, savings and credit.

However, these requirements vary depending on the loan program and lender. So when you apply for a home loan, it is often worth checking your eligibility with more than one company.

deposit

To take out a new home loan, you need to make a down payment of:

0% for USDA loans (must meet income and geographic rules)0% for VA loans (available to veterans and active military only)3% for conventional loans3.5% for FHA loans20% for conventional loans without private mortgage insurance (PMI)

A 3% down payment on a $ 300,000 loan is equal to $ 9,000; To cut it down by 10%, you need $ 30,000.

If you have enough cash to exceed the minimum down payment requirement on your loan, you are more likely to qualify for a lower rate mortgage that saves long-term interest.

credit-worthiness

Your creditworthiness tells lenders a lot about your personal finances. However, you don't need flawless credit to qualify for a mortgage.

The minimum credit score varies by lender and loan program, but they are usually located in this ballpark:

580 for FHA loans, down 3.5% 580 to 620 for VA loans620 for conventional loans640 for USDA loans

Exceeding the minimum creditworthiness of your loan program – especially on a traditional loan – can help you get a lower interest rate, which can save you a ton of borrowing costs.

When doing your own credit check, keep in mind that the ratings you see on free credit monitoring apps are usually higher than the FICO lenders.

Debt-Income Ratio (DTI)

Your existing debts will affect your mortgage eligibility. This is why lenders measure your debt-to-income ratio. This ratio compares your monthly debt payments to your gross monthly income.

The maximum DTIs vary depending on the type of loan:

Conventional loans usually allow up to 43% DTIFHA loans: 43% DTI is typical, but lenders could be up to 50% for otherwise strong applicants VA Loans: 41% DTI are typical for most lendersUSDA loans: 41% DTI

Do you want to measure your DTI? Just add up your loan payments (car loans, student loans, personal loans) along with your minimum credit card payments. Then divide that number by your gross monthly income. Multiply the answer by 100 to get your DTI.

income

Mortgage lenders check your income during the home purchase process by looking at your W-2 forms or pay slips from your job.

When you see your income, lenders can calculate your DTI – and it shows if your monthly cash flow can support your new monthly mortgage payment.

If you are self-employed and don't have pay slips or W-2, ask lenders about tax form or bank statement replacement to prove your income.

Additionally, you usually need a consistent two year employment history to qualify for a mortgage. But some buyers can bypass the two-year rule in special circumstances.

Closing costs

The closing costs pay for the administrative and legal services you need to complete a home purchase loan.

Expect to pay 2-5% of your loan amount towards closing costs. That's $ 6,000 to $ 15,000 for a $ 300,000 home loan.

Sometimes you can ask the home seller to pay these costs – but the sellers are under no obligation to help. You need to negotiate seller concessions in your contract to buy the home.

Check your eligibility as a first-time home buyer. Start here (10/28/2021)

What to consider before buying a home at 20

Before you start home buying, you should consider all of the financial and other lifestyle implications.

You should think about:

Your career

How established are you in your job? Do you expect to be there for a long time? Could your career take you out of the region and therefore require you to move?

You want to stay in the apartment at least long enough to cover your closing costs and break even on the property. It is usually only a good idea to buy if you have owned the home for three to five years or more.

Your income

How much do you earn? How much of your after-tax income could you afford to invest in housing?

You can use a mortgage calculator to see how much your mortgage is likely to cost. Make sure you have the income to cover this, plus the cost of maintenance, repairs, and your regular monthly expenses like utilities, food, phone, car payments, and more.

Your future

Is Marriage In Your Future? Children or pets? Can you afford a house that can accommodate these changes?

You want to make sure that buying a home fits in with your future life plans and goals.

interest charges

What are the current mortgage rates? Would it be better to wait for prices to come down to make your monthly payment more affordable?

Talk to a reputable loan officer if you are not sure and have a look around and compare rates. They can vary widely from lender to lender.

Your local market

What are the housing market conditions like in your area? Are home values ​​rising? Are the prices still affordable?

Your single-family home should not only offer living space, but also be a solid investment property.

You want to buy a home that will increase in value over time and thereby bring you a profit. If you are unsure whether a home in your town is a good investment, contact a local real estate agent for advice.

Your time expenditure

Then there is the responsibility factor. Owning a home takes a little more hands-on attention than renting, and you no longer have a landlord to do repairs (or pay the bills for them).

Make sure you are ready to take on everything that comes with home ownership before proceeding. It is a good idea to have an emergency fund for unexpected expenses.

Steps To Take Before Buying A Home At 20

When your goals, the local market, and your finances all align, it may be time to buy your first home.

This is how you go about buying a house:

1. Prepare your loans and finances

Even if you are in a solid position with your income and expenses, it is important to take some time to prepare your finances before applying for a mortgage or starting your apartment hunt.

This can:

Help You Pay Your Monthly Payment BetterImprove the mortgage rates that are offered to you

Here you can start:

Work on your creditworthiness

Start paying off your debts starting with your highest interest rates. If you have recoveries in your name, settle them and make sure your accounts are in good order.

You should also get your credit report and check for errors. Report this to the credit bureau to improve your score.

Avoid expensive cars

A $ 500 auto payment might not seem huge, but according to our mortgage calculator, it can cut the purchasing power of your home by a whopping $ 80,000. (Given a salary of $ 100,000, a mortgage rate of 5%, and a down payment of 5%.)

A large auto payment can also mean significantly less cash flow each month – especially when added to a monthly mortgage payment.

Save unnecessary expenses

Before buying a home, you should have a good cushion in your savings account as this will help cover unexpected expenses and give you the “cash reserves” that mortgage lenders are looking for.

Be prepared to avoid those morning coffee runs and cut down on your expenses if possible.

Be prepared for other related costs

Your mortgage and down payment aren't the only costs you have when buying a home.

Make sure you're ready to pay any moving costs, new furniture, HOA fees, property taxes, and more. Allow some leeway in your budget to accommodate these.

Need to deal with student loans in addition to your future mortgage? Make sure to keep an eye on these payments as they will affect your credit score.

2. Minimize your down payment and closing costs

The old "rule" of 20% down is not true, but you still face significant up-front costs when purchasing a home.

In addition to your down payment, you'll also need to cover the closing costs – and these can range from 2% to 5% of the total purchase price of your home, depending on the lender.

Fortunately, there are ways to reduce these upfront costs, or at least make them easier to afford.

You can:

Choose a low down payment loan – The deposit requirements vary depending on the loan product. USDA and VA loans don't require anything (although they have strict eligibility requirements), while FHA loans start at 3.5%. Traditional loans require 3% or more. Remember that a lower down payment means more monthly mortgage costsApply for down payment assistance programs and grants – There are many grants and loans that can help you pay your home down payment. These programs vary by state and municipality. So check with your local housing authority to find out what options you may have for your home purchaseTake a look at the graduation aid – There are also programs that can be included in the closing costs or you can see if the seller of your property pays some of your fees. This is common when the home needs repairs or has been sold particularly slowly. Speak to your agent to see if this might be an option for your purchase

You can also get creative by paying this upfront cost. Some young home buyers use crowdfunding to raise money for their down payments and closing costs, while others seek donations instead of wedding favors.

You can also get a sideline to help stash away savings for those extra expenses before buying your home.

Check your eligibility as a first-time home buyer. Start here (10/28/2021)

Buying a home at 20: FAQ

How can I start saving for a house when I am 20?

Saving at a young age can be tricky, especially if you have an entry-level job or have debt on a student loan. The best thing to do is to set a monthly budget, determine what is convenient to set aside, and automate those savings whenever possible. You might want to set a specific amount of each paycheck to save, or just schedule a monthly transfer from your checking account once a month. You can also consider a savings app like Digit or Acorns to save (and even make money) with your extra cash.

Can an 18 year old take out a mortgage?

A mortgage loan is not an age-specific product. Your ability to take out a mortgage will vary based on your creditworthiness, debt, income, and the home you want to buy. As long as you have permanent employment, a solid income, and the means to cover the mortgage payment you applied for, you should be able to secure a loan at any age.

Do i need a co-signer?

You don't necessarily need a co-signer to get a mortgage, although there are some benefits to doing so. A co-signer's income and creditworthiness (if both numbers are good) could improve your interest rates and give you a wider range of prices to work with. It can also help you qualify for your loan more easily. Still, there are some downsides to having a co-signer. For one, they are on the hook if for some reason you are unable to pay your mortgage payment. This can put them in a difficult financial position if they are not prepared for it. They can also harm your application and lower your interest rate if its credit score is lower than yours.

What is the Right Age to Buy a Home?

There is no right or wrong age to buy a home – just the right or wrong time. It is important to consider your financial situation, your employment, the local housing market, and your future goals and plans. Check with a real estate agent or loan officer if you are not sure.

How Long Should You Rent Before Buying a Home?

There's no set number here, but keep in mind that when you rent, these monthly payments go towards your landlord's mortgage – not yours. You are not building a fortune and you will never get that money back no matter how long you stay on the property. When you own the home, your monthly payments go into the equity of your home and that means more income when you later sell the property. So the longer you rent, the more money you throw away and the less wealth you can tap into in old age.

Can I buy a home without credit?

Buying a home with no attribution is difficult, but not impossible. In fact, some mortgage lenders are willing to consider alternative payment histories – such as rent payments – that are not included in traditional credit scores. Remember, however, that having no credit is different from having bad credit. Lenders can operate without credit, but bad credit will be much more difficult to overcome.

Should I buy a house or a condo?

It depends on your personal goals and your financial scenario. Condos are typically smaller than single-family homes, although they are offered at a lower price in most markets. They also usually mean less maintenance (the condominium association covers a lot of that) – a big plus if you're not the handyman or home improvement type. Talk to a local real estate agent about whether a condo or house is right for your situation.

Is It Smart To Buy A Home At 20?

Yes, it is smart to buy a home at any age once you have done your homework. Homeownership can have both risks and benefits. So before you start looking for an apartment, prepare for your success: work on your credit profile and save money. Make sure you have a job that you want to keep and find out if you want to live near you for the long term.

How can I buy a house when I am 20?

You may be eligible to buy a home by the age of 20 if you have adequate credit, stable income, and enough savings to cover your down payment and closing costs. Also, keep in mind that most mortgage lenders require two years of work experience to qualify for a home loan. So, if you are brand new to your career, you may not have enough work experience to get funding.

What is a realistic age to buy a home?

Anyone 18 or older can buy a home. Buying a home becomes easier at any age when you have a reliable income, some savings, and an established credit history. Also, it is better to wait until you are ready to live in one place for the foreseeable future. With these things in mind, any age in your mid-20s could be a realistic age to buy a home.

Confirm your new plan (October 28, 2021)

Related Articles