What to Consider before Buying a Home in your 20s
Buying a home is a major decision, and many major decisions are usually done in one’s twenties: Choosing someone to settle down with, pursuing advanced degrees, and laying the foundations for long-term investments. That said, for many in their 20s and early 30s, it’s hard to imagine making a major decision such as buying a home. In fact, millennials buy homes at a historically low rate. Likely fresh out of college, single and taking first steps in a career doesn’t seem like the best mindset for house hunting. If you’re considering taking the plunge and making a home-buying decision, but are hesitating because you’re young and unsure of what the future holds — we can help you get some clarity.
What’s so great about buying a home anyway?
The answer to this may be obvious to many, but it’s still worth exploring. Sure, houses are known for being great investments — but there last year has seen a general slowing down of the real estate market and there are other great investment routes to choose from, especially short-term. We won’t judge if you’re looking into buying a home to feel like your life is going somewhere, to appease pesky parents, to one-up a ‘frienemy’, or to force yourself into staying in a relationship you’re on the fence about. Be honest with yourself, and if you still want to do it, we recommend you make sure your answer to the following questions is ‘yes’.
Ask yourself the right questions
Hopping on the property ladder while young is a huge plus; being liable for every leak, renovation and property bill that comes your way — not so much. Here’s what you should be asking yourself:
Can I come up with a 20% downpayment without depleting my savings?
The first part of this question is about meeting the basic requirement for a mortgage loan, which is having 20% of the home’s value in liquidity. However, the second half of this question is more important — and it requires you to look into your savings carefully to determine whether plunking down the down payment sum won’t essentially bankrupt you, leaving you without an emergency fund and living tightly off of your monthly salary. If you’ll be able to purchase a home only to fail making ends meet, you may want to lower your home budget or postpone the whole thing.
Can I comfortably afford the monthly cost of homeownership, and continue saving?
When sitting down with a mortgage broker, it’s important to look beyond the monthly loan payments you’ll be making for the next 15–30 years, and take note of the added costs you’ll be liable for. These include property insurance, property taxes, paying for various services such as electricity and water, move-in renovations and required safety upgrades, and even the cost of swapping furniture and appliances.
The best way to approximate your monthly spend is to speak to someone who lives in the neighborhood you’re shopping in, who will have valuable insight regarding taxes, typical maintenance and unexpected money-depleters. If you don’t have someone to advise you on the latter, expect to spend about 1% per year of your home’s equity on unplanned projects. If you factor all of these expenses but can’t reasonably save a percentage of your income, that’s a bad sign — since life tends to get more expensive quickly in your thirties.
Will this home be easy to rent or sell if I choose to?
Your home isn’t going anywhere, but you certainly might. Although you may think you figured everything out and you’re certain this is your ‘forever home’, circumstances have a way of changing: Your family may outgrow the space, you may receive a tempting job offer somewhere beyond commuting distance, or the neighborhood may change in ways you don’t personally like. That doesn’t mean you should avoid looking at homes that meet your plans, but be aware of the possibility of putting the home back on the market in a few years’ time. Knowing that, look into whether the home you’re interested in buying has decent resale or rental potential. This will ensure it won’t impede you from making different choice later in life.
A sober view
If you were looking for an overly-simplistic view of home buying, or a resounding recommendation to ‘go for it, life is short’ — we’re sorry we couldn’t give you that. First-time home buyers tend to romanticize purchasing a home, taking the plunge before they’re financially and mentally ready. As we all know, that can end with a rejected loan or much, much worse. Don’t be afraid to give yourself more time, if you need it — and if you’re sure homeownership is the path for you, proceed with caution, and get good homeowners insurance.
Originally published at gochange.co on August 24, 2017.
