Buying a house in your 20s. Many people see it as an impossible feat. However, its not as far out of reach as you might think. However, before you jump into anything it's important to consider all your options. So, here's a list of steps you should run through before you make that down payment.
Way to save one
An easy way to save money is to set up automatic transfers from your paycheck before you can touch it. Create a second high interest savings account with a second bank. Every week or so money will flow to it without you needing to do anything. Over the years it will add up and when you finally check it you might just have enough for a down payment on a house!
Way to save two
Simple but often overlooked... don't throw away money on stuff you don't need! Sometimes the first thing you want to do when you get a paycheck is to head straight to your favorite store and splurge. But if you know you want to buy a house you'll need to resist these urges. Saving money in your 20s isn't doing it wrong - it means you've taken the time to develop your priorities and how to achieve your goals.
Finding the right city
Take the time to travel and narrow down the place, pace and culture of where you want to live. Someone who hates busy streets, noisy nights and fast paced living isn't going to want to live in New York City. Someone who needs constant stimulation, a variety of cultural activities and loves public transportation isn't going to buy a home in rural Maine. You catch the drift: do the research; it'll be worth it.
Finding a good agent who you trust and who understands you...
Many people think you don't really need a real estate agent - that you can do it yourself. This may be true. BUT the cost if you're wrong could be very expensive - more expensive than a commission usually. If you don't like what your current agent is doing find another one. If they don't understand what you want, seek a second opinion. Make sure you are communicating your needs to them so they can help you in every possible way. Open communication is key in any relationship. (Shameless plug: check out our agents!)
The parental dilemma
If you need help from your parents to buy a house you're not ready. There's a reason banks don't let you borrow the entire amount of a house or don't like buyers to borrow the down payment money from another bank. It just means that you can't really afford the house. Make sure you can stand on your own two feet before adding more of a strain on your bank account.
Put what you can down...
Most lender require at least 10% down. Anything less than 20% and they will usually require you to pay mortgage insurance. Being able to put at least 20% down saves you unnecessary monthly expense and significantly reduces the interest you'll pay over the course of a loan. The more you put down, the more you save and the sooner you'll pay it off. A good rule of thumb is to put down what you can realistically, but not so much that you would be strapped for cash.
Decide if you're really ready to settle down. If you're prone to flights of fancy (cough cough wanderlust) buying a house is definitly not the move for you. And there's nothing wrong with that! If you love to travel dont tie yourself down with a mortgage and maintenance repairs. Someone once told me that paying rent is like a freedom tax, an investment in your own flexibility.
If you really want to settle down, a house can work
Just as its perfectly sensible to pay a freedom tax it's equally as sensible to stop paying it when you know you're not going anywhere.
Buy the house you need, not want
Cant emphasize this one enough. Don't buy more than you need! Just as this applies to food, clothes and everything else it almost applies more so for a house. Why would you buy an extravagent 4 bedroom house if it's just you and your S.O.? Part of the reason that ownership seems so outlandish to people is that their tastes are ridiculous. An adjustment in our needs/wants can create real opportunities. "Wealth" is when you can afford to buy and do what you want - figure out what is important to you and just do that.
It's not just the mortgage that matters! It's the big picture! A house can seem relatviely inexpensive when you only consider the morgage. BUT you need to also factor in the taxes + the insurance + average maintenance costs. If you don't factor this in advance you're in for a very rude awakening you probably can't afford.
Low interest rate + inflation is your friend...
One of the calculations that many people skip when they advise people against buying has to do with some of the tax and currency benefits of buying. The interest you pay on a home loan is tax-free. That's not a savings exactly but it reduces the real costs of that money. The other thing people miss is that were at a point where interest rates and inflation while not exactly the same, are surprisingly close. Today, mortgage interest rates are below 4%, meanwhile inflation in 2014 was at 1.6% per year. Essentially, the difference between what someone pays for their house at closing and what that money is actually worth in 15 or 30 years is considerably different - in their favor. You should still pay off what you can when you can but that discrepancy reduces the actual interest costs.
Make a plan
At the end of the day, it's all about what works for you. Buying a house in your 20s is more than possible. If that's what you want to do map out a game plan and get going. And if you're not ready that's ok too. But with all the changes in technology, the sharing economy and a rise in entrepreneurship, buying a home more sensible than ever before.
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