A lot of people seem to think that the younger generations will never be able to achieve homeownership because housing values have outpaced wage growth for so long. This may be true, and I’m not downplaying the seriousness of affordability issues ... but, actually, you can still become a homeowner under 30. Actually, if you want to, there's nothing stopping you from buying a house before you turn 21; you can legally obtain a mortgage loan at 18 years old.
Interested? Ask yourself these questions to determine if you’re ready to buy and start taking steps to get there.
1. Are you planning to stay in the same area for a few of years?
Unlike rent, homeownership isn't a lease that you can cancel after a few months to move on to “better things”. You'll probably be paying a mortgage for thirty years. Of course you can sell your home before it's paid off, but you may discover that selling a home is much more involved than finding a new place to live.
As a rule of thumb, don't buy a house if you plan to move within next two years. If you don't live in the house for at least two years, and there aren't certain extenuating circumstances surrounding your move, then you'll have to pay capital gains taxes on the property, which could potentially wipe out most or all of the equity you built.
2. How does your credit look?
You can get financing for a home with a low credit score through some government programs, but the higher your credit score is, the better deal you're going to get on your mortgage terms. This can actually be one of the biggest problems for young aspiring homeowners. Credit is built over years, and if you weren't able to start building yours before you turned 18, you'll have a limited credit history to reference, which could mean less desirable loan terms - or no mortgage at all.
3. How much money do you have saved?
Next to the credit score, a lack of savings is another roadblock you may face. You'll have to put some money down on the house, and most mortgage loans require at least 3.5 percent, and 20 percent is idea. With a 20-percent down payment, you won't have to pay private mortgage insurance, and that can save you thousands of dollars over the years.
4. What can you afford?
Many first-time homebuyers are often surprised to learn what they can afford to buy, they may have been able to buy years ago if they'd only known! So don't assume that you can't buy a house just because you're young and haven't reached your full earning potential. It's entirely possible that you could be pre-approved for a mortgage loan today. My recommendation is to speak with a loan officer to find out how much you can purchase before you start your home search.
5. Where can you afford it?
In certain areas, there is often a wide variance in price range. There are entry-level starter homes and massive estates, and everything in between, typically grouped near similar homes. Maybe you've got your heart set on a certain neighborhood that's simply unaffordable for you right now, and the neighborhoods where you can afford to buy may not appeal to you.
This may be the point where it's a good idea to speak with a real estate agent. We buy and sell homes all over your area, and it's quite possible that we know about nooks and areas where you can afford and where you'd actually like to live - and that you had no idea existed.
6. Do you understand the additional costs of homeownership?
Your mortgage loan is going to include both principal (the balance of the loan) and interest (additional money charged for borrowing). But some buyers don't realize that it also includes taxes and homeowners' insurance, all packaged into one payment. This means that to truly understand what your monthly payment will look like, you might need to get some quotes on homeowners' insurance from a local insurance agent and research property taxes.
7. Is your household going to grow anytime soon?
This doesn't necessarily mean getting married or having a baby; maybe you want to get a dog in the near future. If you think you might be making changes to your household in the next few years, wrap them into your home search. That way you can ensure you're buying a place that will grow with you, so you can be comfortable there for the immediate future and then some.