How to buy a home when you’re in your 20s
Purchasing a home at any age can be difficult, but it doesn't mean it's impossible. Young people may just need some professional guidance so they can purchase the custom home of their dreams.
If you're in your 20s and thinking about purchasing a home, here's a few things to consider:
1. It's not impossible
You have piles of student loans, car payments, phone bills and other credit card debit weighing you down. What do we mean you can qualify for your first home mortgage?
Dale Limek, a realtor with Horizon Realty Group in Las Vegas, said that it's completely possible for a young person to purchase a home. They just need to have the right amount of resources.
"There are many ways you can qualify for a large loan and manage debit."
"If someone has a little bit of money, fairly decent credit and a job, it is very do-able," Klimek says.
Purchasing a home will be the most debt you likely take on in your life. We're not shocked that people – especially millennials – feel intimidated when they see a home for sale for $200,000 or more. However, there are a number of ways they can not only qualify for a loan this large but also manage their debt thereafter. Here are a few options:
- Obtain an FHA loan: Insured by the Federal Housing Administration, the borrower pay home insurance to protect lenders if the homeowner defaults on his or her loans. According to Bankrate, to qualify for an FHA loan, people typically need a credit score that's 580 or higher. If borrowers have a score between 500-579, they'll have to make a down payment of 10 percent at minimum. And those who have scores under 500 will likely have trouble obtaining an FHA loan.
- Purchase with a loved one or friend: Understand one thing: Purchasing a home with a friend or loved one is much riskier than renting an apartment together. When renting, you have more options to get out of your lease, but those choices are few and far between when your name is on a mortgage. However, in saying that, if you're willing to take on some risk, you'll likely find it much easier to buy a home with a partner. For example, instead of being responsible for a 20 percent down payment, you can split this cost.
- Refinance your student loans: If you don't have enough money to pay for a home mortgage, you may be able to find extra cash by reducing personal expenses. One way is to refinance your student loans, which you can typically do if you have a healthy debt-to-income ratio. Refinancing can save you a bundle of money each month, which you can then use to invest in your custom home.
2. Understand the mortgage application process
Once you're committed to purchasing a home, you'll need to seek professional help to determine whether or not you can qualify for a mortgage. Here are some of the steps in the mortgage application process:
- Get prequalified: Think of this is as a general estimate as to what type of loan you might qualify for. You and a lender can complete this process online, over the phone or in person. He or she will ask for a basic list of assets, liabilities and income.
- Get preapproved: Along with evaluating your assets, debt-to-income ratio and liabilities, a lender will also check your credit score, employment status and financial information to ensure you're able to qualify for the loan. At the same time, he or she can determine exactly how much you can qualify for.