Buying a house in your 20s might seem impossible when you’re in your 20s. Recent graduates may have student loan debt and are working on an entry-level wage without any hope of a raise.
Millennials have purchased homes, even though it may seem intimidating. The millennial generation is now the single biggest group of homebuyers in our country – and many of them buy houses alone, long before marriage or children are even on their radar.
With Gen Z entering adulthood, even younger homebuyers are now joining them.
Are you also comfortable with this move? Are you also able to afford it? Let’s talk about it.
What to do before buying a house in your 20s
You might be ready to buy your first house if your goals, the local market, and your finances line up.
Here’s how to buy a home:
1. Get your finances and credit in order
Regardless of whether you have a good income and expenses, it’s important to prepare your finances before applying for a mortgage or starting your home search.
As a result, you can:
- Make your monthly payment easier to afford
- Improve your mortgage rates
Let’s start with these steps:
Maintain a good credit score
Your highest-interest debt should be paid off first. Ensure that your accounts are in good standing if you have any collections.
It is also a good idea to pull your credit report and check for errors. If you find any, report them to the credit rating agency.
Don’t buy expensive cars
$500 car payments may not seem big, but according to our mortgage calculator, they can drastically reduce your ability to buy a home. (Based on an annual salary of $100,000, a 5% mortgage rate, and a 5% down payment.)
In addition to a big car payment, a monthly mortgage payment can also drastically affect cash flow.
Eliminate unnecessary expenses
It’s a good idea to have a cushion in your savings account before buying a home, since this will cover unexpected expenses and give you the “cash reserves” mortgage lenders look for.
Reduce your spending wherever you can by cutting out those morning coffee runs.
Prepare for other costs that may arise
When you buy a house, you’ll need to pay more than just a mortgage and down payment.
Prepare yourself for the cost of moving, new furniture, HOA fees, and property taxes. Be sure to leave some wiggle room in your budget for these expenses.
Do you have to deal with student loans and a future mortgage at the same time? Your credit score is affected by these payments, so keep them current.
2. Save on closing costs and down payments
You won’t have to put down 20%, but you will still have significant upfront costs when purchasing a home.
Your closing costs will also be a part of the down payment – and they can range anywhere from 2% to 5% of the total cost of your home, depending on the lender.
You can lower these up-front costs or at least make them more affordable by finding ways to reduce them.
You can also come up with creative ways to pay these up–front costs. In order to raise money for down payments and closing costs, some young homebuyers use crowdfunding, while others solicit donations for wedding presents.
Getting a side job prior to buying your home will help you save up for these extra expenses.
3. Choosing the right home
When shopping for a home, you should first determine what kind of payment you can afford.
Make use of a mortgage calculator to narrow down your ideal price range, and make sure you still have enough cash flow to cover all your other monthly expenses (including unexpected ones).
When you see a home you like listed, you’ll have to act fast if your local housing market is extremely expensive. You should plan on seeing the property within a couple of days, and you should be prepared to offer a decent earnest money deposit to entice the seller to take your offer seriously.
You can also influence a seller’s decision by including a personalized note in your offer letter.
4. Arrange your mortgage
Finding the right lender is the first step in the mortgage process. Banks, credit unions, and fintech firms are just a few of the many options available.
Usually, the rates advertised by a lender aren’t the ones you’ll get. Make sure each lender you consider gives you a quote along with a breakdown of fees
Be sure to read reviews as well. Lenders can have very different customer experiences.
Last but not least, attend your closing. It is most likely to take place at your title company, but it can also be done online via a mobile notary or other digital method.
Your down payment and closing costs will need to be paid via wire transfer or cashier’s check either way. A closing disclosure sheet should be provided by your loan officer well before this date, so you know exactly how much you will owe.
Upon completion of the process, you will receive your keys and the home will be yours.
Before you buy a house in your twenties, consider these things
Consider all the financial and other lifestyle implications before starting the home buying process.
Consider these things:
What is your level of experience in your field? Are you expecting to stay there for a long time? Is it possible that your career may require you to move out of this area?
To break even on the property, you should at least stay in the home long enough to recoup your closing costs. An ideal time to buy a house is when you’ll own it for three to five years.
What is your income? Can you afford to spend a certain percentage of your after-tax income on housing?
To determine how much your mortgage will cost, you can use a mortgage calculator. Don’t forget to include the costs of maintenance, repairs, and your regular monthly expenses such as food, phone, and car payments.
Do you plan to get married? Will you have children or pets? Is your budget flexible enough to accommodate those changes?
When purchasing a home, you’ll want to make sure that it fits your future life goals.
Rates of interest
Right now, what is the mortgage interest rate? Is it worth waiting for rates to drop so that your monthly payment becomes more affordable?
Be sure to shop around and compare rates if you’re not sure about this one. There can be huge variations between lenders.
Market conditions in your area
In your area, how are the housing markets? Are home values increasing? Is housing still affordable?
A single-family home should not only provide a place to live, but also serve as an investment.
When buying a home, you want one that will increase in value over time, thus bringing you profits. Consult a local real estate agent for advice if you’re not sure whether a home is a good investment in your city.
Commitment to your time
The responsibility factor is also important. Renting is a lot less hands-on than owning, and you don’t have a landlord to make repairs for you (or foot the bill).
Be sure you’re prepared to take on all that comes with homeownership before taking the next step. For unexpected expenses, having an emergency fund is a good idea.