Many people in their twenties choose renting over home ownership for a variety of reasons. But if you plan to stay in the same place for the next three to five years, buying a home could be a smarter move in the long run.
From building equity to tax benefits, home ownership in your twenties could benefit you for years to come. If you think you’re ready to be a homeowner, get started with these tips.
Buying a Home in Your 20s Start Saving
For six to 12 months or more, you should save as much as possible. Create a budget and savings plan, and stick to it. You will need money for a down payment, closing costs and other expenses. The more you save, the better positioned you will be when you are ready to make your move.
Build Your Credit
People in their 20s may not have much credit established, which can make it difficult to get approved for a home loan. Apply for a credit card and use it regularly for items you purchase anyway, such as groceries and gas. Pay it off in full every month. Never spend more than you can repay in a billing cycle if you can avoid doing so.
Watch Credit Reports
There are many online options for monitoring your reports and credit scores from all three major credit reporting agencies. You are also guaranteed by law a free report from each agency once per year, which can be accessed at www.annualcreditreport.com. Make sure that all of the information is accurate, and report any inaccuracies.
Research Down Payment Assistance
There are multiple programs that provide grants, zero-interest second mortgages, and other forms of down payment assistance for first-time homebuyers. Look into programs in your state as well as your city/county. In Florida, for instance, state programs range from $7,500 to $15,000 for first-time homebuyers who complete a homeowner counseling course.
Before you begin looking at homes, get pre-approved for a mortgage. If you’re going to use a down-payment assistance program, you will likely need to take the required class before making any offers. The assistance may not be available if the contract is executed before the course is complete, so make sure to follow the guidelines.
There are multiple loan options available. FHA loans, for example, only require 3.5% down. Research your options before committing to a lender. It’s wise to get offers from at least three different lenders before selecting a loan product. An inquiry on your credit report can affect your score, so you will want to have all three check your credit for pre-approval within a short time frame. Multiple inquiries for the same purpose should not negatively affect your score, though multiple inquiries over a longer period of time can lower it.
Don’t Buy Too Much House
Once you know the mortgage amount you’re qualified for, you can start shopping. But keep in mind that just because you’re approved for that amount, doesn’t mean you have to spend that much. Consider your other obligations and establish a budget that includes a mortgage payment that is comfortable for you. Don’t buy more house than you can afford, even if the bank is willing to give you the loan.
Do Your Homework
When it comes to choosing a neighborhood, don’t assume that what you see is what you get. Drive through neighborhoods at different times of the day and night, weekdays and weekends. Observe the traffic and the activity. An area quiet by day could be the site of loud parties at night. That’s something you don’t want to find out after you’ve moved in.
Keep these tips in mind and your first home-buying experience should be a good one. There are many advantages to owning a home, so making the effort to approach the purchase in the right way is worth the effort.