I Bought a House in My 20s: 7 Steps I Took That Made It Possible
In today’s economy, the idea of buying a house in the U.S. seems less and less realistic. The median sales price of a home is $417,700, nearly $100,000 higher than it was just before the COVID-19 pandemic, according to the St. Louis Fed.
And then there’s rising interest rates to contend with. Right now, mortgage rates are hovering at around 7%, though borrowers with better credit or a larger down payment might end up with a lower rate.
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Considering how much the interest rate can affect the monthly mortgage payment — especially on more expensive homes — many people who dream of owning property just aren’t sure if it’s feasible. But while cost is certainly a factor, homeownership might not be quite as out of reach as you think.
In fact, even people who are relatively new to the job market have found ways to do it. GOBankingRates spoke with Audrey Clarke and Cierra Dootson, two individuals who purchased their first homes in their 20s, to see how they did it and what they’d suggest for prospective homeowners.
Here’s what they said.
Determine Your Financing Options
When it comes to buying a house, there are a lot of ways to go about it. Many first-time buyers go through a lender, like a bank or credit union, to obtain mortgage financing. Common options include conventional loans, FHA loans, VA loans and USDA loans.
But not everyone takes the same route.
For Audrey Clarke, a managing member at Addison Clayton Funding, LLC, the process began in a less traditional way — with owner financing.
“I purchased my first house with my husband at age 25,” she said. “We both worked, but we really didn’t know a lot about buying a home. We met a man who was willing to allow us to buy with owner financing. It was a great start to the homebuying process.”
With owner financing, you cut out the lender and instead work directly with the current homeowner — or seller — to determine the terms, conditions and payments for the property. The owner might also charge interest on those payments, just like a traditional lender.
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Weigh Those Interest Rates and Mortgage Prices
Aside from qualifying for and obtaining the right kind of financing for your situation, it’s also crucial that you consider the current interest rates and housing prices in the area you’re thinking about buying property.
For Cierra Dootson, the digital brand director at Geneva Financial, these were two key factors that helped her find an affordable first home when she was just 24.
“The journey to homeownership began in 2018, a period characterized by reasonably low mortgage rates, which played a crucial role in making my dream feasible,” she said. “I opted for a location where the real estate prices were not prohibitively high, enabling me to acquire a spacious 2,000-square-foot home, complete with four bedrooms, three bathrooms, generous living areas and an upgraded kitchen.”
While home prices and rates are higher now than they were in 2018, prospective buyers should still weigh these two factors when deciding whether to buy a home and where. Even if the property is smaller, the features are simpler, or you’d prefer a slightly different location, don’t forget that your first home is — usually — your starter home. You can always upgrade later, when you have more funds or interest rates fall.
Build Your Credit, Too
Mortgage lenders will pull your credit reports to determine whether or not you qualify for their financing programs. If you don’t have good credit, your loan application could be denied — or you could end up with less favorable terms or rates.
In Clarke’s situation, she said they were able to use owner financing for the first two years after moving into their first home. After that, however, they had to secure their own financing.
But it’s not always so simple as just making a switch. If your credit isn’t where it needs to be, you might need to take some time to work on that first.
“We worked on building our credit by obtaining secured credit at credit unions and paying our bills on time,” said Clarke. “I used Experian Boost, asking my sister to add me on her credit card, but I had no usage. I saved money and worked to pay bills on time with auto pay to ensure no bills were forgotten.”
If your credit is keeping you from buying a home, figure out exactly what it is that’s dragging down your score and start working on it. It might take some time, but you’ll get there.
Save Up for a Down Payment
Many lenders will require you to put at least 3% to 5% down for your first home. With certain loans, like USDA or VA loans, you might be able to obtain financing with no down payment at all — but this does mean a larger loan and potentially higher monthly payment.
If you want to buy your first home, you’ll want to start saving up. One way to do this is to cut your living expenses down. For Dootson, that meant living with her parents temporarily as she saved up the amount she needed for her down payment.
If saving up a large amount of money isn’t viable, check out down payment assistance (DPA) programs. There are many out there, most of which are available for first-time buyers under a certain income limit. These programs can also provide financial literacy on saving and budgeting to help you in the long term.
Refinancing Is Always an Option
Obtaining mortgage financing can be tricky or expensive — often both. But once you get a home loan, you can always refinance it later for a better rate or lower monthly payment. That’s what Dootson did.
“Recognizing an opportunity to improve my financial situation, I refinanced my mortgage, successfully eliminated my private mortgage insurance (PMI) and secured a lower interest rate of 3.25%,” she said.
Keep Learning as You Go
While everyone’s career path will take them in a different direction, Dootson said hers directly helped her get her first home.
“My path to this achievement started shortly after graduating from the University of Arizona. I gained valuable experience working in property management, which provided insights into the real estate market,” she said.
“During this time, I secured a position at Geneva Financial … where I worked directly under the guidance of the CEO, Aaron VanTrojen,” she continued. “Aaron ran my financials and outlined what I could afford, which ultimately led to a down payment of just $6,000 on a home priced at $180,000, with an initial interest rate of 4.25%.”
Sometimes, you might need to make a few mistakes before you get to where you need to be. And that’s okay, as long as you learn from them.
“I have since learned so much about credit, saving and various terms,” said Clarke, who’s had a few financial pitfalls along the way. “I continue to save with 100 envelopes, Roth IRA, 401(K)s, etc. to help ensure no more pitfalls. I review my budget regularly and adjust as needed. I minimize spending and watch subscriptions.”
Don’t Let Obstacles Get in the Way of Homeownership
“For those in their twenties contemplating homeownership, I urge you not to be deterred by potential obstacles,” said Dootson. “Numerous programs are available to assist with down payments, and revisiting your current expenditures can accelerate your savings. Even if interest rates rise, refinancing remains a viable option.”
“Keep an open mind about the type of home you consider — your first house does not need to be your ultimate dream home,” she continued. “There’s always hope and possibility, and with the right strategy, you, too, can achieve homeownership at a young age.”
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This article originally appeared on GOBankingRates.com: I Bought a House in My 20s: 7 Steps I Took That Made It Possible
