Should you buy a house when you’re under 30?
Buying a home is a huge milestone on the way to achieving the American Dream, but when you’re under 30, is it always a good idea? Most people view home ownership at any age to be a reflection of financial stability and a wise investment. When you’re under 30, it’s especially admirable and a pretty good indication that you have your act together.
There’s plenty to consider when you want to buy a home at the tender age of twenty-something, though. You’re young in your career, still learning to manage your finances and facing the hard truth about life’s unpredictability. Let’s look at some things you should consider before you rent a U-Haul and move down the road to home ownership.
What are your long-term plans? Buying a home is not a spur-of-the-moment decision. If you expect a return on your investment, be prepared to stay put for at least five to seven years, as a rule of thumb. You should also be in a position of stability in terms of your career and be on a path to financial advancement.
Calculate your monthly expenses. Are you still digging yourself out of student loan debt? Is your credit card debt under control? How much is your car payment? If you already owe tens of thousands of dollars, compounding it with a mortgage may be spreading your financial responsibilities a little too thin. Be honest with yourself and don’t bite off more than you can chew.
Are you able to purchase a home without exhausting your emergency fund? Your emergency fund is for unexpected costs. It’s critical that you have a financial cushion for surprise expenses that may otherwise devastate your finances. It’s even more important when you own a home. Costly home repairs are one reason, but if you’re laid off from your job or diagnosed with a serious illness, you’ll still need to continue to pay your mortgage and avoid foreclosure.
Can you afford to put down 20% and avoid Private Mortgage Insurance? Private mortgage insurance (PMI) protects the lender in the event your home falls into foreclosure. PMI usually ranges from 0.3% to 1.5% of the original loan amount per year, although it depends on the amount of your down payment and your credit score. Here’s a crazy thought: Put down 20% and avoid PMI altogether.
How’s your credit rating? Your credit score significantly impacts the interest rate on your home loan. Be sure to request a copy of your credit history before you apply for a mortgage. Review it and resolve any discrepancies. You might even think about taking some time to improve your score in order to secure a better interest rate.
How much do you know about mortgages? Rates may currently be at an all-time low, but you should still compare mortgage rates and talk to a trusted mortgage broker about loan options. There are first-time home-buyer loans, fixed and adjustable interest rates, and some that even offer down payment and closing cost assistance. They all have different features and requirements, so work with a knowledgeable broker who can find you the best deal.
Study the housing market before you buy. Is it a buyer or a seller’s market? You want to pay a fair price for your home, so make sure you’re not buying when houses are in high demand, and prices are inflated. Recognizing trends or changes in your local market could help you find a well-priced buying opportunity before anyone else.
Realize this won’t be your ultimate dream home. Your first home won’t likely be everything you want it to be, but a smart investment coupled with a few years of appreciation may lead you there. Seriously consider resale or rental value when choosing not only home features, but location as well.
Purchasing a home is a big deal, and it’s easy to get caught up in all the excitement. Consider these tips, take your time, and you’ll be sure to find your piece of the American Dream.