From low salaries to paying off student loans and making sure you have a fun time, the 20s are full of aspirations. And within all this, if you are curious about buying your first home, settle in; you are not the only one.
It’s true that thinking of savings that much money for a downpayment and taking out monthly EMIs on entry-level salaries can be challenging for young home buyers. But, it’s not entirely true that it’s way beyond your abilities. Purchasing a new home in your 20s is possible and here’s how you can sweeten the deal before you hit your 30’s.
Save Up For Downpayment
Wondering how to get started with getting a mortgage? Here are the basics. Unless you are a military Veteran who can qualify for true $0 down home loans, you would have to make a downpayment.
Depending upon case ti case, this downpayment can be any amount. In addition to this, if you pay a downpayment of less than 20% of the total loan amount, you would have to pay for the PMI (Private Mortgage Insurance), which can increase your monthly instalments by 1.15%.
In short, if you are financing for a house worth $250,000, you would need around $50,000 as a downpayment.
So, how do you gather that much money?
Frankly speaking, saving is the key. And, if you don’t have people willing to pay for a downpayment, invest rather than saving. Set aside some amount every month from your paycheck and invest it.
Manage Your Student Loan
To qualify for a mortgage, you need to have a debt-to-income ratio of less than 36%. The ratio is calculated by dividing your debt from your monthly income.
Paying $500 from your $6,000 monthly salary won’t pose many difficulties, but having a big student loan on your shoulders might be challenging.
However, getting rid of your student debt is not the only way to qualify for a loan. Most home buyers refinance their existing loan for a longer term. This reduces their monthly expenses and, therefore, the debt-to-income ratio. However, the only catch is that you would have to pay more interest.
Keep Your Credit Score In Check
Another difficulty getting in your way might be your credit score. Because your credit utilization ratio tends to be higher during your 20s, you might not have the perfect score.
Most lenders will require you to have a score of at least 660 to qualify for the mortgage. If you do not have a good credit score, you can co-sign someone, like your parent, on your loan application. This will provide reassurance to the lender and will increase the possibility to qualify for a mortgage.
You can also check your credit score online and work on it by consolidating any overdue, keeping your credit card usage in check and paying the monthly instalments on time.
Look for a Starter Home
Let’s be honest. Planning to purchase a high-end duplex property in your 20s is almost next to impossible. So rather than setting unrealistic plans, go for a starter home. You can sell the home once you have enough money to afford the house of your dreams.
Your first home doesn’t have to be your forever home. Just stick to your budget. In fact, purchasing a starter home can come with various benefits, like you can qualify for a 5 or 7-year adjustable mortgage, where your interest rates would be lower for the first 5 or 7 years. This can be a great option, especially if you are not planning to stay in that house forever.
Besides saving up for the downpayment, keep in mind that you would also have to pay the closing costs, lender’s fee and other charges. It’s true that becoming home buyers in your 20s can be quite challenging, but it’s not entirely impossible. With the right aim and planning your finances accordingly, you can easily purchase your new home and make your parents proud.