Buying a home when may seem like something that is far off in the distance when you’re in your twenties. When you’re in your twenties, your life is constantly shifting because you are just getting started. Between continuing your education, entry-level salaries, and the desire to be 20-something, it is easy to make purchasing a home a low priority goal. That being said, if you are interested in buying a home, it is very much achievable! At Gavish Real Estate, we’ve put together some tips to help you buy a house in your twenties!
First things first, you should consider what kind of home you want to purchase. In your twenties, you will most likely not be purchasing your “forever home.” By choosing to purchase a starter home, that is to say, a home that is smaller, more affordable, and easier to furnish and maintain, you will have an easier time staying on top of your mortgage payment. Who knows, you may even decide to relocate to another city!
Another benefit of purchasing a starter home is that if you decide to move or purchase another home, you can use this home as a rental that offsets your mortgage payment!
When it comes to taking out a loan to buy a home, most lenders recommend coming in with a downpayment of 20%. There are quite a few reasons why financial planners recommend coming in with a down payment of this size. Simply put, the larger the value of your down payment, the smaller your loan will be which means you will pay less in interest and mortgage insurance over the span of your loan period.
While you can get a mortgage with a smaller down payment, you will pay more in the long-term due to a higher interest rate and repayment term.
One of the biggest reasons that purchasing a home seems so far away for many people in their twenties is that it’s really easy to lose track of your credit score and to let debts get out of control.
If you want to qualify for a mortgage loan in your twenties, you will want to stay on top of your credit score. Most lenders will be looking for a few things. First, you want to have at least 2 years of credit history. This means having a credit card or any line of credit open for at least two years prior to applying for a loan. You will also need to have a relatively good credit score. Most lenders recommend having a credit score above 660 in order to get a decent interest rate and term.
Most lenders also want you to have a debt to income ratio below 36%. Your Debt to Income ratio is an equation that is used to measure how much debt you owe versus how much money you earn on a monthly basis. This means that between credit card payments, student loans, and any other debts that you owe, you want to make sure that you stay below 36% even with your mortgage payment. This may mean that before you can purchase a home you may need to pay off as much of your debt as possible before taking on another loan.