How to Buy a Home in Your 20's

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How to Buy a Home in Your 20s
 

Many 20-somethings can - and do - make the leap into homeownership. Millennials, defined by the National Association of Realtors (NAR) as homebuyers up to age 34, made up the largest group of recent homebuyers at 32 percent, according to a recent NAR survey. The median age of millennial buyers was 29 years. While that's at the top of the 20-something bracket, the median definition means half the buyers were younger and half older.

According to the NAR survey, millennial buyers had a median income of $76,900 and typically bought a 1,720-square-foot home that cost $189,900. Fourteen percent were unmarried couples, the highest proportion of any generation in the survey.

Of course, the ability to purchase a home still depends on an individual's personal and financial situation; but here are some strategies 20-somethings can use to help make homeownership a reality:

Ask mom and dad for cash
Of the millennial buyers in the NAR survey, 97 percent financed their home purchase, relying most often on their own savings or a gift, typically from a parent, for their down payment. The median down payment for millennials was 7 percent.

Consider an FHA loan
In addition to having lower mortgage rates than conventional loans, FHA loans allow a cosigner's income to be considered. That can help young adults whose own salary or wages might not be high enough for them to qualify on their own. Also, FHA loans ignore student loan payments if they're deferred for at least 12 months.

Low-down-payment options
Fannie Mae and Freddie Mac guarantee 3-percent-down loans, but an FHA loan or a 5-percent conventional loan is usually a better option because the payment and mortgage insurance will be lower. The only time there would be a benefit (of the 3-percent conventional loan) is when the FHA loan limit for an area is too low to allow the buyer to purchase the desired home.

A VA loan is another good option for those who are eligible, since no down payment is required. And we at Paramount waive our origination fee on a VA loan - a savings of $995.

Purchase a starter home or condo
Many young people naturally start out by purchasing starter homes, which can be smaller, older or located in a less desirable neighborhood compared with other homes.

A condominium can also be a good starter home for a young buyer.

Don't let age be more than a number
It's a common misperception is that a borrower must have a two-year work history in the same job to qualify for a mortgage. Borrowers must show a two-year history, but being a student can count toward this requirement.

The bottom line
Being able to purchase a home doesn't necessarily mean all young adults should do so. Inexperienced buyers tend to focus on their monthly mortgage payment without realizing that owning a home also means paying property taxes, utilities and maintenance and repair costs.

Another concern is that homeowners typically can't move as easily as renters can. Those in their 20s are highly mobile in the job market, and if the house value drops 20 percent and they have to come up with money to sell it, they're locked into a situation they may not want to be in.

Buying a home in one's 20s is certainly feasible and there are plenty of affordable options that will allow a young adult to do so, but the financial and lifestyle considerations must be taken into account before investing in a home.