Are Young Homebuyers Making The Right Decision?
When Jessica Thompson turned 20 years old, she and her boyfriend (now husband) bought a little bungalow in Oklahoma City. The young homebuyers still live in their home seven years later after putting in years of sweat equity remodeling it.
“We had rented a studio apartment on the third floor for $630 a month and then we got dogs. We decided they needed a backyard,” she says.
Now, they pay $522 monthly for their own home.
How Could They Buy So Young?
Saving a down payment at that time in their lives seemed almost impossible - as it does for many Millennials. Yet, they learned from their real estate agent to take advantage of a first-time home buyers’ federal tax credit available in 2010. They found a two bedroom, one bath home on Craigslist sold by the owner.
Today, that credit doesn’t exist, but it’s been replaced by many other down payment assistance programs.
Such a big purchase can be intimidating to many young people. Thompson sees that fear all the time now that she has become a Realtor at Loxwood Real Estate in Oklahoma City.
“The challenge we had at being so young would be that we were just inexperienced, particularly when it came to financing. We didn’t have a lot of money saved up,” she adds.
They also didn’t know how to shop for the right loan. But a Realtor helped them through all the stages of buying. That included knowing a reputable home inspector and termite inspector, and then helping them negotiate the repairs and replacements.
What’s The Best Age To Buy A Home?
That questions remains complicated.
“I wouldn’t put a number on it. It’s really about how settled that person is or what their life holds in the future,” says Ilona Bray, J.D., an award-winning author and legal editor at the consumer-friendly legal website Nolo.
She co-authored Nolo’s Essential Guide to Buying Your First Home.
Individual states determine the age someone can sign a binding contract to buy a home or take out a mortgage.
The Nebraska State Bar Foundation offers the booklet Reaching the Age of Majority of Your Legal Rights and Responsibilities. It educates youth about the rights and responsibilities of entering adulthood.
The booklet states that some of the rights at age 18 include making a contract — taking out a loan in your own name, for instance — and becoming personally responsible for the obligations of contacts you make.
The booklet also states that a creditor cannot turn you down for a loan because of your age, according to the Equal Credit Opportunity Act. But you will still have to earn your credit rating yourself.
How Can Young Homebuyers Get A Mortgage?
Younger people may have a problem acquiring a credit rating. They usually use their parents’ credit cards, Bray adds.
You get credit by, well, getting credit. Your parents, if they have good credit, can help by adding you to their accounts as an authorized user.
You can also establish your own credit. Start out with small credit limits, typical of the accounts offered to college students. But be careful.
“So many people sign up for credit cards in college and mess up their credit rating, because it’s easy to get a card at that age. That can be a barrier to getting a home,” she says.
Establishing good spending habits and not going crazy with credit cards can shift the good credit scale to your side.
One thing lenders are allowed to do is use non-traditional credit for those without enough credit to generate a credit score — that’s rent payments, utility bills, even regular deposits to savings accounts. FHA, HomeReady and Home Possible are more flexible programs — good for first-timers.
What Are The Cons Of Buying So Young?
Lack of Mobility — The prevailing wisdom, Bray explains, is that it doesn’t make financial sense to buy a house if you don’t think you’ll be there for three-to-five years. “Your life still might change at such a young age.”
Too much responsibility –Taking care of a house is like taking care of a giant pet, Bray adds. “It’s all these responsibilities that someone else used to take care of when you were renting or living with your parents, such as just changing the filter on the furnace.”
Less fun time – The lawn needs to be mowed. The windows need to be washed. If something breaks or something needs to be repaired, you take care of it.
Extra money for maintenance – Instead of weekend trips to the beach or mountains, you might have to stretch your budget for the unexpected repairs or appliance replacement.
What Are The Pros Of Buying A Home So Young?
Debt-free sooner — For Thompson, she and her husband will be able to pay off their home early in life because they were so young when they bought it.
Create wealth sooner – If you buy a home in your 20s, you’ll likely have built significant home equity by the time you’re in your 30s. That helps establish your credit and ability to get other loans.
Safe keeping – When you rent, the landlord has most of the power. You can be kicked out at the end of your lease just because the landlord’s nephew needs a place to live. With a home, it’s yours. No one can kick you out – unless you don’t pay your mortgage.
Decorate your way – You like orange paint. You can put it on every wall you want inside your home. In an apartment, there’s no way you would be able to do that unless the landlord allowed it. And most likely, you would have to paint it all back to that drab beige before you move out.
How Many Young Homebuyers Are There?
The 2016 NAR Home Buyers and Sellers Profile shows that first-time homeowners were a median 32 years old with a median income of $72,000. So what about all those in their early- to mid-20s who really believe buying a home is right for them?
Thompson advises her fellow peers to research down-payment assistance, and find a great Realtor and lender. Building a good credit score remains a top priority, too.
“I would recommend having four lines of credit, but don’t be crazy on spending over 35 percent of your limit,” she says. “And once you get the house, always pay your mortgage on time above any other bill.”
Bray stresses to have your eyes wide open if you want to buy a house – no matter what age you are.
“No one hands you a list and tells you to do this or that once you buy a house. That can be a big transition from life when you were focused on your own education and future,” she said. “It becomes a side job to be conscious of the life of your house.”