Many Americans dream of becoming homeowners. Is it your dream too? Sometimes, people want to purchase a property as soon as possible, even in their twenties.
If you are young but already have the financial stability to buy a home, you should evaluate the pros and cons of this decision. Millennials are the largest share of home buyers. They represent 43% of home buyers these days.
In this article, we will talk about the most significant reasons to purchase a property in your twenties and the benefits and drawbacks of this option.
Top Reasons to Purchase a Property in Your 20s
Purchasing a property in your twenties is a significant milestone. If you often say, I need money now you most likely don’t have the financial stability to make this big-picture purchase.
If your finances are in order and you have stable employment to ensure on-time mortgage payments, buying a home sooner may help you build equity.
It means how much of the property you own outright. Being young and active may be beneficial to build your wealth for the long term and reaching your financial goals faster.
If you take out a mortgage and buy a home in your twenties, you will most likely repay this debt by retirement, provided that you don’t borrow against the home equity later and reside in your home.
Besides, this decision may help you build wealth as the value of your home will grow eventually.
As you start a family and have children, you can utilize this profit to purchase a larger home.
What to Do Before You Purchase a Home
Before you take out a mortgage, you should review your finances. The following factors affect your ability to purchase a property so that this decision fits the budget and makes it an affordable option.
If you rush with this decision without taking a closer look at your finances, you may lose your property or be deep in debt for the rest of your life.
- Review Your Career. This essential factor defines your chances of approval and your ability to pay the debt off according to the repayment schedule. Do you have a stable source of income? Is your employment steady? Are you confident you will have enough means to make regular mortgage payments? Considering your income is vital for people planning to request a home loan. You need to set a budget to realize how much is left for savings and debt obligations. Of course, you need to save for a down payment and ensure you can afford a mortgage.
- Check Your Credit Rating. Crediting companies will conduct a credit inquiry. This procedure is needed to verify the client’s creditworthiness. Thus, you should have a decent credit rating to apply for a mortgage with affordable interest rates. What can your credit history tell you? It may tell how much debt you have, whether you pay down the minimum balance on your credit cards, and how responsible you are with debt. The three-digit figure represents your credit rating, one of the most significant factors that define your chances of being approved.
- Consider Homeowner’s Insurance. When you take out a mortgage, the crediting company usually wants to ensure your property is protected and you have purchased insurance. Homeowner’s insurance is essential as it pays for damage and losses to your property in case of burglary or fire, mentions CFPB. Thus, creditors typically demand proof that a borrower has homeowner’s insurance. Consumers may shop for this insurance and select the provider and coverage that is suitable for them.
- Save for the Down Payment. You may already know that the larger your down payment is, the lower your monthly mortgage payments will be. So, you should aim to save as much as possible in your twenties if you are willing to become a proud homeowner sooner. An online mortgage calculator is beneficial for seeing how much you should save for a down payment and what percentage of your income should go toward this savings goal. Each home loan option may have different requirements concerning the down payment. For instance, you are expected to pay between 3.5% and 10% of the home price with an FHA loan. Remember that private home loan insurance may be needed if the down payment is less than 20 percent.
Pros and Cons of Purchasing a Property in Your 20s
Despite the global financial crisis, the total amount of mortgage debt has recently increased in the USA. The mortgage debt will reach 18 trillion US dollars in 2021 compared to 16.8 trillion US dollars in 2020.
Value of mortgage debt outstanding in the United States from 2001 to 2021
What has led to this growth of mortgage debt? The number of house sales is responsible for this growth. The more home loans are issued, and the more homes are sold, the higher the total mortgage debt.
Besides, house prices keep increasing, bringing the debt outstanding and gross lending up.
Here are the advantages and drawbacks of buying a home in your twenties.
- Tailor your home. You may customize a property to your tastes and needs when you own a property. You can renovate the rooms, paint the walls, or install new flooring.
- Consistent payments. The home loan payments are usually fixed, so you can easily budget and have predictable monthly expenses. When you rent a home, the landlord has the right to increase the rent.
- Moreover, this decision can be an excellent investment. The house prices go up, so you can sell it and profit if you purchase a larger home.
- Rates may fluctuate. There is no guarantee your low-interest rates won’t increase in the future. If your rating drops, the interest rates can fluctuate, so you will have to wait until you repair your credit score.
- Your needs can change. You may have a particular perception of your perfect home in your twenties, but this perception may change later when you start a family. You should have a bigger house that will suit your new lifestyle once you have a pet or get married.
The Bottom Line
Buying a property in your twenties may sound like a great idea, but both sides should value each decision. Consider the benefits and downsides of this option before you take out a home loan.
Think about where you want to live and what home you need. It may be a good investment if your credit is in good standing and you qualify for low rates.