If you’re purchasing a home in your 20s, you are something of a unicorn. The typical age of a first-time homebuyer is 35, according to 2023 data from the National Association of Realtors. If you’re well under that, you’re ahead of the curve. Many reasons for waiting, according to NAR, are due to limited inventory and high prices. The year prior, the typical age to buy a first home reached a record high of 36.
If you’re considering buying a home at a young age, you may have doubts about becoming a homeowner already. Is there such as thing as being too young to buy a house? What should a young homeowner consider before making a purchase?
[Want to Buy a House in 2024? Follow these 14 Steps]
Can You Be Too Young to Buy a House?
Most state laws allow people to buy a house when they are 18. The two exceptions are Alabama and Nebraska, where you have to be 19. In Mississippi, the age was 21 until July 1, 2023, when the law was changed it to 18.
Are you too young to get a mortgage? Lenders typically base mortgage decisions on an applicant’s income, credit score, assets and debts. The Equal Credit Opportunity Act stipulates that lenders are not allowed to discriminate based on age.
What to Consider Before Buying a House — The Younger You Are
In a lot of ways, deciding to buy a house at a young age is no different than if you’re purchasing a home in your 30s, 40s, 50s or beyond. It’s just that, odds are, if you’re in your early 20s, the elements you’ll need to be a successful homeowner probably haven’t lined up for you yet.
What are those elements? A prospective homeowner of any age will want to consider several factors.
Money. That’s fairly obvious, but it’s often the biggest impediment to buying a home.
“It shouldn’t be a question about one’s age,” says Melissa Cohn, regional vice president at William Raveis Mortgage, headquartered in Shelton, Connecticut. “The real issue is when a person is fiscally mature enough to handle the responsibility of purchasing a home and taking out a mortgage.”
Cohn points out that buying a home “is generally the largest financial transaction that a person will undertake in their life.”
In the third quarter of 2023, buyers were offering, on average, a down payment of 14.7% of the home’s purchase price, translating to approximately $30,400 in cash, according to Realtor.com.
You should think about having money beyond the down payment, says Lisa Simonsen, a luxury real estate broker at Douglas Elliman Real Estate in New York City.
She advises potential buyers to have money saved up for closing costs as well and move-in expenses. Closing costs are typically about 3% to 6% of the loan, and they are sometimes rolled into the overall mortgage loan, which will increase the cost of borrowing money for a house. The average cost of a local move is $1,250, according to Moving.com.
“I tell my younger clients to aim for an additional year’s worth of liquidity, enough to cover a year’s worth of mortgage payments and monthly carrying costs, such as real estate taxes, HOA fees,” Simonsen says. “In New York City some buildings even require a 20% down payment plus 18 to 24 months of liquidity.”
Simonsen adds that young homeowners need to remember that if they can get past the financial hurdle of a down payment and possibly needing additional liquidity in your finances — banks like to see that you’re not going to have trouble making payments after you’ve forked over a large down payment — you’ll need to budget for the costs of maintaining your home. Landlords take care of expenses such as mowing lawns or repairing the roof; as a homeowner, that’s all on you.
[READ: Guide to Average Home Maintenance Costs.]
Your credit. Even if you have a significant amount of money saved up, mortgage lenders want to see a healthy credit history and score. Typically, to get approved for a mortgage, you’ll need a minimum credit score of 620. But lenders would prefer to see a higher score.
“In order to get approved for a competitively priced mortgage, a buyer should have credit scores above 700. Ideally 720,” Cohn says. “They should also have tradelines that have been open and active for at least 12 months. Ideally three tradelines, but you can borrow with just one.”
Tradelines are accounts that appear in your credit report, for example credit cards, mortgages, personal loans and auto loans. When a credit bureau is asked for your credit score, the tradelines in your credit report are used to generate that score.
Lenders like to see that home loan borrowers are successfully borrowing money for other expenses. Cohn says she has encountered young lenders who had enough money for a down payment, but they lacked much of a credit history and were turned down.
“Some lenders require that borrowers have three to four tradelines on their credit report,” Cohn says. “Many younger buyers don’t, and there are banks that will decline a loan if they don’t meet the minimum guidelines.”
How long do you plan to live in the area? If you’ve just graduated from college and landed your dream job, you might think that you’d rather buy a house than put money toward an apartment every month. While apartment living may or may not sound appealing, you should think about whether you want to plant roots at this point. It’s not impossible to sell a house after a few years, but real estate experts advise staying in a home longer than that so it can build up some value.
It can feel freeing to have the flexibility to leave one city for another by simply calling a moving truck and giving your landlord a few weeks’ notice.
“I think for some young homeowners, it really depends on what their goals are, especially if they’re 18 or 19 years old looking at a home,” says Alana Lindsay, a New York City-based real estate agent with Coldwell Banker Warburg. “They really have to determine if they are going to be in a set place for five to 10 years, and they are so early in that stage of life, so it may not be as concrete for them.”
[READ: How to Decide Where to Live.]
Why Do You Want to Buy a House?
You need a place to live, and you may not want to live in an apartment or with family members. But beyond that, think about why you want to buy a house. Knowing the answer might help determine if you should buy a home now or wait a few years.
Marisa Simonetti, owner of Simonetti Real Estate Team in Minneapolis, bought her first home 10 years ago, when she was a 20-year-old college student at the University of Minnesota.
She was probably too young, given that she didn’t keep the house long, but it wasn’t a bad experience. She learned a lot about homeownership and ultimately chose real estate as her career. She sold the townhouse after two years and moved back to her family’s house with her parents, brother and sister. She now owns a home where she lives with her 6-year-old son.
Scraping up a $25,000 down payment for the townhouse at age 20 wasn’t a problem for Simonetti, who says she was homeschooled for 12 years, freeing up her time to work as a nanny “and do my classwork around those times. I’ve always been frugal and a saver and started saving as soon as I could work.”
But while buying the townhouse was pretty easy, selling it was less so, according to Simonetti.
Simonetti had trouble coming up with her share of the closing costs, and she had no equity in her home to use toward them. Given that she didn’t sell the house at much of a profit, she says, “The house was essentially rented — with the responsibilities of homeownership.”
So it is possible that you could buy a house and spend plenty on furnishing and upkeep, only to sell it quickly without making a profit and feel that you would have been better off renting.
But if you’re excited about building equity or paying off a house sooner rather than later in life, then maybe purchasing a house when you’re young is a good plan, if you can swing it.
Is an Investment Property a Good Idea?
If you think you’re going to be in the home for a long time, that’s a good reason to purchase young, Lindsay says. But she also considers purchasing a house to be a sound financial investment.
A young homeowner, Lindsay says, “could potentially buy an investment property that they can house hack.”
A house hack is a relatively new real estate term for an old idea: You live in a multifamily home and rent out part of it, so you’re taking care of your own living arrangements but also earning a profit at a property that is essentially an investment vehicle.
Think Past the Money
Lindsay says that there are a lot of reasons, beyond money, to not buy a house too early. “There are so many other factors at play here, like educational goals, travel goals and even family goals,” Lindsay says.
One thing is for sure, Simonsen says, is you shouldn’t be mad at yourself if you’re in your 20s and not a homeowner. If you’re in your 20s or early 30s and all of your friends are buying homes, keep in mind that you may not know the whole story, beyond the photos you’re seeing on social media.
“In the last five years, my team has helped dozens of young home buyers purchase in New York City,” Simonsen says. But she adds that “more than 90%” of those buyers bought homes with help from their parents.
She cautions young would-be buyers to not attempt to keep up with the Joneses.
“You never know who has extra help behind the scenes. I hear so many young people state that they need to own a home by age 30 to feel successful,” Simonsen says. “Each person’s financial journey is different, and for some people, it may be more financially prudent to rent now and buy later.”
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Are You Too Young to Buy a House? originally appeared on usnews.com
