I’m in my 20s. Is it the right time for a mortgage?
Buying a house in your 20s might seem like a worthless commitment one should not be even thinking about at this point of his life. However, with the current tendencies of modern real estate market, historically low interest rates and irrationally increasing monthly rental payments, getting into the mortgage to buy the first house to call their own doesn’t seem like the craziest choice and unbearable financial burden for millennials, who have stable income and may already afford to rent a home on their own.
In fact, in terms of compared monthly mortgage payments and rent for roughly the same properties in the same local area, buying a house through mortgage does less damage to the young person’s budget than renting the same premises and essentially ensuring the profit to the landlord instead of investing in their own property. Being frustrated at the thought of pouring more money down the rent drain, as well as bearing in mind the benefits of buying a home and the undeniable advantages of renting one, more and more young people decide to take active steps towards their dream of owning a house as soon as they feel like they are able to afford mortgage along with the house insurance, taxes and other home maintenance costs.
It’s crazy to think that the market got to the point when renting is almost equally as financially burdening as buying, even though the latter choice is way tougher from the perspective of the long-term commitment and responsibilities it’s related to.
Depending on your personal finances, the job you’re enrolled into, your personal plans for future and your current living situation, your decision to tie yourself into a mortgage while still being quite young may either impose too much of both financial and maintenance responsibility on you or turn out to be an extremely smart move and timely investment.
On the brighter side of the issue, the current situation stimulates more and more young people to buy their first homes earlier than they’d expect to be able to. Eventually, it’s not the age, but the readiness and the willingness to buy a house that should determine the right time to do that. And, the earlier you start with your mortgage the earlier you'll finish.
So, if you’re in your 20s, contemplating about house purchase and determining whether you’re ready to settle down and make the biggest investment of your life, these tips will help you make the final decision.
Factors young people need to consider before committing to mortgage
Can you afford it?
The first prerequisite to buying a home, even a modest one, is having a stable job that due to which you’re able to support yourself/your family, your mortgage along with the bills, student loans if you have any, health care, home maintenance and insurance costs, unexpected expenses (like plumber’s services for frozen pipes or roofing contractor’s post-storm roof repair services), etc. Don't forget about saving for retirement, potential kids' college funds, possible car purchases, and other significant articles of expences.
Keep track of your income and expenses and approach your finances realistically in order to determine whether your current budget allows you to make an extra window for a house purchase.
If you’re quite hesitant when answering this question, enlist the assistance of a mortgage calculator. After analyzing the provided data, it will help you asses your financial capability, set the price limits for the house you’re able to buy at this point of your life, measure the monthly mortgage payments and down payments referring to the local lenders’ offers and recommend the amount of money you need to save up before buying your first home.
Are you ready to settle down?
It’s not only the matter of finding a stable job that doesn’t require too much flexibility and doesn’t include too frequent business trips. It’s not only about knowing where you want to live for the rest of your life and where you want to raise your kids. It’s also about finding a great job in the state/town/neighborhood you really want to live in and being able to afford to buy a house there. Otherwise, there’s no particular point in buying a house, no matter how young or old you are.
It’s hard to get approved for a mortgage when you’re 20+ years old
Young people with little work experience (=financial history in terms of mortgage) and minimal to no credit history followed by a student loan normally find getting approved for a mortgage by the lenders extremely complicated, sometimes almost impossible.
There’re a few things you may do to gain credit scores if you have no previous credit history. Try to boost your credit score by applying for a credit card and paying it off on a regular basis. Get one with a low credit limit and keep the balance above that point to prove your eligibility to sustain a mortgage.
Furthermore, getting approved for the mortgage prior to going house shopping is a wise idea as well. Thus, you won’t set your expectations too high and will be able to choose among the homes that fall into your estimated price limits.
House purchase isn’t limited to the monthly mortgage payments
The fees you’ll have to pay real estate agents, lawyers, insurance companies, the money you’ll have to spend on moving, remodeling and furnishing your new home will pile up into a significant sum of money you’ll have to be prepared to pay off right after the purchase. So, don’t forget to add that to the estimated savings you need to accumulate for the house purchase.
Seek professional financial consultation
A professional and impartial glance at your finances is rather important when it comes to buying a house or making any other kind of significant money investment, let alone doing so at the early stages of your adulthood, when you may get too excited about becoming completely independent and showcasing your career and money-related achievements by buying your first house in your 20s, and thus overestimate your ability to afford the purchase without going completely broke or having to cut your daily expenses to the lowest point possible.
Are you ready to some major sacrifices?
First of all, you’ll have to save up for a down payment to get the mortgage. Secondly, the mortgage is nothing like renting, when you may persuade your landlord to postpone your pay date, or find the roommates to split the rent and make it easier for you, or even find a cheaper place to live in. You’ll have to get prepared to pay a significant sum of money every single month no matter what. On top of that, you’ll need to cover the insurance costs and pay all the bills (on the contrary to renting, when landlord pays for some of the utilities).
If your income doesn’t change for better, you’ll have to refrain from spontaneous purchases, eating out too often, going on summer vacations and even rethink your budget for groceries to be able to pay off your mortgage without delays. Most importantly, you may have to review your plans for expanding your family and the number of kids you’re able to support, as the mortgage is the article of the expenses you most likely won’t be able to get rid of for 25-30 years or so.
Do you have a backup plan?
What are you going to do if you lose your job or start receiving a lower paycheck? What if you get sick and not able to work for a while? Have you considered unexpected health care expenses you or your kids may require? Do you have some ‘mortgage money’ in your emergency fund for that matter?
Will your partner be able to bear solo financial responsibility for your joint mortgage in that case? Will you be able to cover the mortgage and the home maintenance expenses if something similar happens to your spouse?
When committing to a mortgage, one always has to have a backup plan for emergency situations like that.
Are you ready to deal with house maintenance?
Maintaining house in a great condition and making sure that its value is only increasing for as long as possible takes a lot of time, knowledge, effort and money. The renovations and maintenance repairs are inevitable, the contractors’ services costs vary depending on the difficulty of the job and the need to conduct them might appear out of nowhere.
The roof may leek after a storm or a hurricane, the basement may get flooded and require carpet replacement, the washing machine may break down and there will be no landlord to take care of it for you.
If house maintenance is not something you want to deal with in your 20s, you may want to save the pleasures for later and continue renting.
There’re a few ways young people may make their mortgage more affordable
There’s a silver lining to each cloud, even if it’s a mortgage one. There’re a few programs that promote affordable housing for young families and provide various offers that make mortgage less difficult for them. In addition to that, you might find super attractive house offers that require minimum to no down payments, making it easier for people with limited savings to apply for a mortgage, get approved for it and start paying for their own home instead of providing for landlord’s living.