Decades ago, it was normal for people in their 20s to own a home. These days, it seems like a nearly impossible dream. With the current market prices only going up and student loans to pay off, buying your dream home at a young age can seem like a farfetched day dream.
While homeownership at a young age isn’t easy, it isn’t impossible. If you’re determined to buy a home while you’re still young and are willing to put in the work, it’s entirely possible to buy your dream home. You will need to do some research and save up your money, but as long as you’re committed to the end goal, it’s possible.
Here are a few tips to help you along the way:
#1. Start Saving for a Down Payment
As a young person, you probably have student loans that you need to pay off which can make saving for a down payment sound difficult, if not downright impossible. However, having a down payment is a vital part of buying a home as you will very, very rarely be able to obtain a loan without committing to a down payment.
The good news is that not all loans require a down payment of 20%. In fact, some loans have a down payment requirement as low as 3.5%. Some loans may have no down payment requirements at all, but they’re more difficult to qualify for.
Most low or no down payment loans do come with extra stipulations such as private mortgage insurance requirements, but they make buying a home much more of a possibility for those who can’t afford the traditional 20% down payment.
#2. Stick to a Budget
When it comes to actually looking for a home, make sure you decide on a budget ahead of time and stick to it. Market prices are high and will continue to rise, but don’t let yourself spend more on a home than you can afford. Budgeting is important and can make the difference between affording your new home and defaulting on your mortgage.
Defaulting on your mortgage can lead to the foreclosure of your home and you’ll be forced to move out. While you will get many notices beforehand, defaulting on a mortgage is never fun and no one wants to experience it.
Once you determine your budget, stick to it religiously. Don’t look at homes that you know are more expensive as this may tempt you to expand your budget to an amount that you can’t actually afford.
#3. Get Pre-Approved
Getting pre-approved for a mortgage can make the process of buying your home and getting a loan that much easier. While it may seem like a waste of time or an unnecessary hassle, pre-approval will help you with many other aspects of the home buying process.
When you get pre-approved, you have a much better idea of how much you’ll be able to take out for a loan and how reasonable your budget is.
Now, the amount that you’re approved for may be higher than you budget, but this isn’t a sign that you should raise it. You know your spending habits much better than any lender, so take this into account before you decide to change your budget.
Of course, the amount you’re pre-approved for could be lower than your set budget which means you’ll have to reconsider your options.
However the pre-approval turns out, it’s definitely worth the effort as it will give you a much clearer idea of what aspects of your life you’ll need to change in order to afford such a loan, as well as how much the bank may actually approve you for.
#4. Look at All Your Mortgage Options
There are all sorts of different types of mortgages and it’s worth looking at all of them before you make your decision. You won’t be eligible for some of them, but that’s okay. There’s bound to be at least one or two that you know you’re eligible for, but take the time to research before you commit.
Something you may not consider is also looking at mortgages that you aren’t currently eligible for, but may be in the near future. One such example is for current active duty or future military members. If you’re currently in the military or know you’re going to join, you should look into a VA cash out refinance even if you aren’t eligible right now.
With a VA cash out refinance, you can take out any type of mortgage now and then after you qualify for the VA refinance, you can take advantage of the benefits offered. You’ll need to have served for a certain amount of time, but using a VA cash out refinance can make paying off your mortgage easier.
#5. Build and Improve Your Credit Score
If you don’t have a credit card or you haven’t really started building credit, you should start doing so immediately. Lenders will always look at your credit score before they approve you for a loan and if you don’t already have credit built, they’re likely to deny you.
Having a good credit score of 780 or higher will not only increase your chances of being approved for a loan, but it will increase your negotiating power. You may be able to get a loan with a lower interest rate if you have a good credit score and know how to play your cards right.
Keep Your Eyes on the Prize
It’s going to take you time to save up enough money to buy a home, so don’t get discouraged if you aren’t able to meet your goal in a year or two. Remember also that the first home you buy may not be your dream home. Once you buy your first home, though, you’ll be that much closer to buying your dream home and you’ll already know what to expect, so don’t lose sight of your goal!