By comparison with previous generations, millennial buyers (those born between 1990 and 1998) account for 43% of all house purchases as of July 2021.
Young adults from Generation Z, or young adults born after 1997, are also about to enter the property market. A 2019 survey by mortgage lender Freddie Mac found that more than 85% of younger Gen Z members want to own a home and anticipate doing so by the age of 30. If this happens, the average homebuyer would be 33.2 years old three years earlier.
Planning is needed when buying a home in your 20s, and these suggestions can be useful.
Select Your Purchase Location and Items
Real estate is all about location, location, and location for Millennials wanting to buy a home, but it’s also crucial to consider how long you plan to remain in a particular neighborhood.
Think about how quickly and easily you’d be able to sell the house if you ever needed to move due to a career change or marriage in your 20s. Even if a move is not in your near future, there are certain considerations to consider when determining what you want from a place:
- Do you want to be near eateries and stores?
- Would you like to live in a neighborhood where you can bike or walk to places like capital smart city?
- Do you prefer living in a city or a suburb?
Even if the house isn’t in your ideal neighborhood, it might still serve as a starting point for your search for a lasting home.
When purchasing a home in your 20s, you must also choose the type of property to purchase:
- solitary-family house
- condo or duplex
- Small house
You might also be required to pay extra costs, such as homeowners association dues, depending on the kind. You must also weigh the expenditures and decide whether you want an older or modern home. You might be able to purchase a fixer-upper for a great deal, but you’ll probably have to invest time and money in remodeling it. A move-in ready home, on the other hand, might require fewer improvements.
Examine your finances
You must carefully review your finances before moving forward with a home purchase in your 20s, especially if you’re buying alone. Whether the house fits your budget and whether you can afford to buy a home depends on a number of factors. Each of these elements has an impact on the mortgage approval procedure.
Ensure a good credit score
One of the most crucial aspects lenders take into account when accepting home loans is your credit history, along with your credit score. Your credit history, which lists all of the loans and credit cards you’ve had, demonstrates to lenders your debt management skills. A numerical measure of your credit history and ability to make on-time debt payments is your credit score.
90% of reputable lenders utilize FICO credit scores.
In 2021, Gen Z’s average credit score was 679, compared to 686 for Millennials.
In your 20s, having strong credit can make it easier for you to qualify for a mortgage, but it doesn’t guarantee you’ll obtain the best interest rate. Low-interest rates are preferable since they result in less total interest paid during the loan’s duration. A lower rate may also enable you to pay less each month for your mortgage or buy a home that is more expensive. You might require a co-signer, though, if your credit history is insufficient.
Keep in mind the down payment
You must be aware of how much cash you will require for a down payment if you intend to purchase a home in your 20s. Usually, the monthly payment decreases as the size of the down payment increases. You may be able to afford a more costly home if you make a greater down payment. To run several scenarios by using a mortgage calculator.
Millennials between the ages of 23 and 31 put down 8% when buying a property in 2021. There are programs available that allow for lesser down payments for first-time homebuyers.
How to Prepare for a House Purchase
It’s crucial to evaluate your debt load, including credit card debt, student loans, and auto payments, before purchasing a property in your 20s. Your debt-to-income (DTI) ratio, which measures how much of your income is used to pay off debt each month, is influenced by the amount of outstanding debt you have.
The average DTI ratio that mortgage lenders will take from homebuyers is 43%, while 36% may be preferable.
It could be more difficult for you to qualify for a mortgage if you have a lot of debt, which means that a large portion of your monthly income is spent paying off debt. In order to increase your chances of obtaining a mortgage with favorable conditions, you might need to pay down part of the debt.