6 Essential Tips for Buying a House In Your Early 20s (2024)

FAQs

Is it smart to buy a house in your early 20s? ›

Is it smart to buy a house in my 20s? Yes, it is smart to buy a house at any age if you've done your homework. Homeownership can bring both risks and rewards. So before you start house hunting, put yourself in position to succeed: Work on your credit profile and start saving up some money.

The process can differ among lenders but in every case, there are six boxes to check off when applying for a home loan: Get your down payment together; pick a lender, check your credit score, check your debt-to-income ratio, set aside closing costs, and apply for pre-approval of a mortgage.

The Location

They say the three most important things to think about when buying a home are location, location, location. You can change almost everything else, but you can't change your home's location.

Almost 30% of 25-year-olds own their own homes, a higher percentage than their parents at the same age.

Renting and buying both have their pros and cons for young professionals. Renting allows you to avoid certain costs, such as making repairs and upgrades, property taxes and homeowner's insurance, but depending on where you live, owning a home may be the more affordable option.

If less than 20% of your income goes to pay down debt, a home that is around 4 times your income may be suitable. If more than 20% of your monthly income goes to pay down existing debts in the household, dial the purchase price to 3 times.

How Much Money Do You Need to Buy a House? A good number to shoot for is saving 25% of the sale price, in addition to setting aside 3–6 months' worth of your typical expenses for emergencies. So if you're looking to buy a $300,000 house, you should save around $75,000 (on top of your emergency fund).

Principal — your mortgage payment. Interest — your borrowing rate. Tax — state property taxes. Insurance — homeowners insurance.

What gives a house the most value? ›

Stick to the 28/36 Rule

No matter how you finance your home purchase, most experts agree that people should not spend more than 28% of their gross income on housing expenses, and no more than 36% on debt. For example, if you earn $5,000 each month, your ideal mortgage payment should be no more than $1,400 per month.

The majority of Gen Z (79.8%) believe they can only afford a home that costs less than $200,000. Only 6.9% of Gen Zers believe they can afford a home over $500,000 in their desired timeframe. These discrepancies in home price affordability truly depend on the state, city and area one may be looking to buy.

When you're in your middle years or older, chances are you'll have a higher, steadier income and a better idea of where you'd like to settle down than when you were first starting out. You'll also leave yourself time to build excellent credit, which may qualify you for the best available mortgage rates and terms.

But is there a right age when these factors should be in place? And are these the factors Americans should consider when deciding to become a homeowner for the first time? In 2022, the average age of first-time homebuyers was 36, according to the National Association of Realtors (NAR). This is up from 33 in 2021.

If you're only going to live in a place for only a year or two, renting makes more sense. However, if you're going to stay there for three years or more, then buying would be a good idea and it becomes a better idea the longer you stay.

Buying a house gives you ownership, privacy and home equity, but the expensive repairs, taxes, interest and insurance can really get you. Renting a home or apartment is lower maintenance and gives you more flexibility to move. But you may have to deal with rent increases, loud neighbors or a grumpy landlord.

How do I start saving for a house in my 20s? ›

On a $70,000 income, you'll likely be able to afford a home that costs $280,000–380,000. The exact amount will depend on how much debt you have and where you live — as well as the type of home loan you get.

If you're an aspiring homeowner, you may be asking yourself, “I make $70,000 a year: how much house can I afford?” If you make $70K a year, you can likely afford a home between $290,000 and $360,000*. That's a monthly house payment between $2,000 and $2,500 a month, depending on your personal finances.

Based on the current average for a down payment, and the current U.S. average interest rate on a 30-year fixed mortgage you would need to be earning $126,479 per year before taxes to be able to afford a $650,000 home.

Conventional mortgages, like the traditional 30-year fixed rate mortgage, usually require at least a 5% down payment. If you're buying a home for $200,000, in this case, you'll need $10,000 to secure a home loan.

As a general rule, you shouldn't spend more than about 33% of your monthly gross income on housing. If you choose to spend over that amount on your mortgage each month, you run the risk of becoming what's known as house poor, which is when you spend a large portion of your monthly income on your home.

With a 20% down payment (or $20,000) on a 30-year $100,000 mortgage, you'd need to make at least $1,418 in minimum monthly income to afford it. That means your annual household income would have to be around $17,000 to afford a $100,000 home with 20% down.

New home superstitions suggest that you bring bread and salt, as well as honey, wine, and rice, the very first time when you step through the threshold of your new place, so you never know hunger and have a sweet life full of joy and excitement.

A good rule of thumb is that your total mortgage should be no more than 28% of your pre-tax monthly income. You can find this by multiplying your income by 28, then dividing that by 100.

What are the 7 steps to buying a house? ›

What to do before buying a house includes getting pre-approved. It is one of the most critical steps in the home-buying process! Pre-approval means you should be able to get the loan as long as nothing changes about your financial situation or your credit score.

Changes in the real estate market can lower the value of your home. Natural disasters and climate change can lower your property value because the property is a greater risk to purchase. Foreclosures in your neighborhood can also drive down property value.

Supply and demand. The basic law of supply and demand have a major effect on the housing market. Simply put, as the housing supply decreases or as demand rises, creating an inventory shortage, home values go up. A real estate inventory shortage means that there are fewer sellers than there are buyers.

But will painting your house increase the value? Yes, it can absolutely affect your resale value! Online real estate giant, Zillow, has conducted paint color analyses like this one over the past few years to determine which exterior and interior paint colors add the most value to your home during resale.

It's recommended you have a credit score of 620 or higher when you apply for a conventional loan. If your score is below 620, lenders either won't be able to approve your loan or may be required to offer you a higher interest rate, which can result in higher monthly payments.

What Is the 28/36 Rule? The 28/36 rule refers to a common-sense approach used to calculate the amount of debt an individual or household should assume. A household should spend a maximum of 28% of its gross monthly income on total housing expenses according to this rule, and no more than 36% on total debt service.

How much do I need to make to buy a $300K house? To purchase a $300K house, you may need to make between $50,000 and $74,500 a year. This is a rule of thumb, and the specific salary will vary depending on your credit score, debt-to-income ratio, type of home loan, loan term, and mortgage rate.

We recommend first-time home buyers view around 6 – 12 homes before buying. This ballpark figure should be just the right amount to help you find the perfect home in your price range. Weighing your options is essential, but looking at every home that piques your interest can have downsides.

What are the three factors most important to deciding which home to buy? ›

You should examine your income, savings (for a down payment and closing costs), and recurring debt to figure out how much house you can afford to buy.

The three most important factors when buying a home are location, location, and location. Too often I hear people talking about making decisions based on the home itself, instead of the location, and that is a mistake.

When you're in your middle years or older, chances are you'll have a higher, steadier income and a better idea of where you'd like to settle down than when you were first starting out. You'll also leave yourself time to build excellent credit, which may qualify you for the best available mortgage rates and terms.

According to data from the 2021 National Association of Realtors (NAR) report, the typical age of all homebuyers has risen to 47 years old, up from 31 years old in 1981. On the other hand, the median age of Texas homebuyers is 47 and the median age of first-time buyers is 32. Do you want to buy your first house?

There is an ideal age to buy your first home, and that's between the ages of 25 to 34. As you enter your golden years and (hopefully) retirement, the equity in your home will become even more important to your financial health, especially should you need to refinance to cover any gaps in your retirement savings.

Your 20s can be a great time to take on investment risk because you have a long time to make up for losses. Focusing on riskier assets, such as stocks, for long-term goals will likely make a lot of sense when you're in a position to start early.

There's no minimum age to buy a house. If you're ready and have a down payment, buying a house in your early 20s is a smart move.

How Much Money Do You Need to Buy a House? A good number to shoot for is saving 25% of the sale price, in addition to setting aside 3–6 months' worth of your typical expenses for emergencies. So if you're looking to buy a $300,000 house, you should save around $75,000 (on top of your emergency fund).

How long should I live in my first home? ›

How Long Should You Stay In A Starter Home? You should stay in a starter home for at least 2 years but ideally, you'd stay for 3 – 5 years. The reasons include avoiding capital gains taxes and earning money on your investment, which we'll talk more about below.

Q: How many homeowners have paid off their mortgage? A: 37% of U.S. households no longer have a home mortgage to pay, according to a Zillow data analysis.

While the average age borrowers expect to pay off their mortgage is 59, the number of survey participants who have no idea when they will pay it off at all stood at 16%. In 2019, 9% of those asked didn't know and in 2020, 11% gave this answer.

Before the pandemic, the average age of a first-time buyer was 32, based on analysis of Land Registry data and figures from comparison website GetAgent's partner estate agents.

In general, you'll likely find it cheaper overall to buy an existing home, but that also depends on the market. A home loan is less risky than a land loan, and typically comes with a lower down payment and better interest rate.

Millennials — who are roughly ages 27 to 42 — are in their prime homebuying years. The typical first-time buyer was age 36 in 2022, up from age 33 in 2021, according to the National Association of Realtors. Last year, first-time buyers made up 26% of home purchases, compared with 34% in 2021.

Share. Nearly 75% of Americans say that owning a home is a more significant measure of achievement than having a successful career or even raising a family, according to a survey from Bankrate.com of about 2,500 adults.

Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

Alice Rowen Hall, director of Rowen Homes, suggests that “individuals should aim to save at least 20% of their annual income by age 25.” For example, if someone is earning $60,000 per year, they should aim to have $12,000 saved by the age of 25.

Younger people are no exception. Of “young millennials” — which GOBankingRates defines as those between 18 and 24 years old — 67 percent have less than $1,000 in their savings accounts and 46 percent have $0.