Tips to know when buying a home in your 20s
Perhaps you finally want to move out of your parents' place, or maybe you just want to stop wasting all of your money on rent.
Buying a home might be the next logical step for you.
If you're in your 20s, buying a home can either be a wise investment or a huge waste of money. Here are some tips to know.
HOW MUCH CAN YOU REALLY AFFORD?
When you are approved for a mortgage, you are approved based on your income, not necessarily by how much you can afford or how much room is in your budget.
Therefore, don't think of that number as your target house budget. Instead, look closely at your budget. What are you paying now in rent? What can you afford to pay in terms of a mortgage?
Buying less house than you can afford will benefit you greatly immediately and later down the road. Not only will you have smaller monthly mortgage payments, but you might also be able to pay off the house faster or avoid foreclosure if financial hardships come your way.
WHAT ARE YOUR LONG-TERM PLANS?
People in their 20s are usually not in their forever jobs or their forever homes. If you're unmarried and don't plan on having a family anytime soon, then don't bother getting a house with a lot of rooms.
On the flip side, if you just got married and have a baby on the brain for the upcoming year, consider that when looking at homes. The goal is to buy a house that fits your 5-, 10-, and 15-year plan.
What do I mean by that? If you plan on having a spouse and child in five years, get a house suitable for a growing family. If you plan on moving out of state in 10 or 15 years, then don't go all out on an expensive home that you'll need to eventually sell.
WHEN BUYING A HOME IN YOUR 20S, HOW IMPORTANT IS 20% DOWN?
You can buy a home without putting 20% down. In some cases, you can even get away with securing a home with 0% down, depending on the promotions available in your area for first-time home buyers.
However, when you don't put 20% down, you'll be required to pay towards private mortgage insurance (PMI). This can add about $1,000-$2,000 to your yearly mortgage payments for this mandatory fee. You can have the PMI removed when you have at least 20% equity in the home.
The home which my husband and I bought at 22 didn't require us to put 20% down, and the PMI payments were on the higher end. Thankfully, the housing market took a big upturn a year after we bought our home, increasing the value of our home by $100K. A simple refinance gave us a better rate and allowed us to ditch the PMI.
BE PREPARED FOR EXTRA COSTS
Have you ever used an online mortgage calculator? There are several great ones on the web, but the problem with them is that they usually don't include HOA fees, PMI fees, taxes, and insurance.
After all of the fees, your actual monthly home payment could be quite more.
Not only will there be extra costs in your monthly mortgage payment, but there are several fees associated with buying the home, including the cost of inspection.
Once you're a homeowner, you're hit with even more costs that you wouldn't have had to deal with if you were renting.
Ready to buy a home in your 20s? I say go for it. Just make sure your mortgage payment is well within your monthly budget. Remember, almost any house can be turned into your dream home with a little elbow grease and vision, so don't let a move-in ready home blow your budget.
Did you buy a house in your 20s? What advice would you share? Are you in your 20s and thinking about buying a house?