Hi, I'm Lauren. I bought a home at age 26, weathered a nasty renovation, and lived to tell the tale (and write the book on millennial homeownership.) Since I get the question a lot, especially since I originally posted the piece below in 2014, I thought I'd finally lay it all out: the steps to buy a house, how to buy a home in your twenties (I did at the tender age 26), even when you don't make a lot of money, and how to get started even when you have no clue what you're doing. (I was making less than $40k a year when I applied for my mortgage. The post I wrote for The Penny Hoarder on this very topic is here. )
It never ceases to amaze me how surprised people are when I tell them that I'm unmarried and I own my home.
I was car shopping one weekend, filling out the requisite paperwork and the sales guy asked a few casual questions.
“Rent or own? You rent your home, right?”
“No, I own.”
“Oh.” He said with a look of surprise and checked off the “Own” box on the credit application.
But his surprise isn't misplaced. I'd argue that nowadays (especially with the abundance of millennial related real-estate articles on the internet) many millennials are forgoing home ownership for two reasons.
- One: they wait until marriage because at that point they probably have a better idea of where they want to live, stability in the workplace, etc.
- Two: They value low key, low maintenance lifestyles and homeownership often doesn't fit this value point.
The Most Important Steps to Buy a House (in Your 20s and Beyond..)
Step #1 – Know Where You Want to “Settle Down”
I moved off to New York at 23. After two years in the city, I wanted to move back home to Georgia, and not just for the interim. Having had the experience of living far away from home was an amazing thing, because it taught me what I did and did not want. I knew that moving back south was (most likely) for the long haul, so I felt comfortable with the decision to put down some official “roots,” but for many the 20's are a time of exploration. Being unfettered with family means you can take that job in another state or move abroad if you so desire.
Making home ownership affordable in your 20's really only works if you can commit to your home for at least five years (either living in it as your primary residence or renting it out.)
So, yeah. Figure out your 5- year life plan before pulling the trigger on a home purchase.
Step #2 – Shore Up Your Credit
Twenty-somethings may have low (or no) credit which means you'll have a hard time getting approved for a mortgage. For those who have no credit, try opening up a credit card with a small limit and paying it off every month. For those with established credit, be sure to review your credit report, keep your balances at 30% or below your credit limit, and pay all balances on time. Click here to check your credit for FREE with Credit Sesame!
Step #3 – Figure Out How Much You Can Afford (& Get Pre-Approved for a Mortgage)
After you hone in on where you want to lay down roots, and take the time to improve your credit, it's time to roll up your sleeves and figure out how much you can afford.
You can't seriously shop without knowing how much home you can afford, and doing this homework/ getting pre-approved for a mortgage is actually super easy in the online era. Use the widget below to play with the numbers and see how your monthly payment would be affected depending upon your interest rate and money down.
You can also get pre-qualified with any lender, either the bank you have your checking and savings accounts with, or with specific home lenders (like Quicken Loans or LendingHome for example.)
You should also be aware of the types of loan products. Many first-time buyers can qualify for an FHA loan (and only put 3.5% of the purchase price down) and having a lower down payment helps alleviate a lot of the financial barriers to home ownership. There are also 203k mortgage loans to help you pay for renovations on a fixer upper, and more traditional options like a 15-year mortgage. Do the homework and find what's best for you. Especially given the recent changes to the tax plan, purchasing a home may look different for certain buyers.
Step #4 – Aggressively Save for a Set Period of Time
Okay, so you know how much you can afford for a mortgage, but what about a down payment? If you don't have large nest egg or a gift from family members, it's time to start trimming the budget and start saving aggressively. Here are a few of my favorite ways to make fast cash for larger financial goals, such as saving for a down payment.
- Here's how to hustle $100-$5,000 bucks.
- Take on non-creepy side jobs on craigslist. Here's the guide.
- 8 ways to quickly build up savings.
- Create a better budget to make saving easier.
- The 5 easiest things to cut from your budget.
- Start your own business (or a small “side hustle.”) Here's the complete how-to.
- Start blogging (here's how I made over $160,000 with mine.)
- New apps like Qapital rounds up your purchases to the next even number and “saves the change” for you…automatically. I saved $75 my first month with Qapital and didn't even lift a finger, so I highly encourage you to give those a try– it really adds up!
- Make some quick cash by filling out surveys in your spare time. Here are the ones I like!
- Plus other ways to build passive income.
- Ask for a raise + other ways to earn more money at your 9-5.
Step #5 – Research and Leverage Down Payment Assistance
One thing I did do right in my first home purchase was that I researched the crap out of every down payment assistance and grant program that I could find. In 2013, the city of Atlanta was offering $15,000 in down payment assistance grants to first-time homeowners who purchased foreclosures in certain neighborhoods.
It was a good bit of paperwork, but in return I received $15,000 in down payment assistance. It's a “soft loan” which gets forgiven a little bit each year. I also could use the money however I chose–for down payment, principal or both. I only had to pay $1800 at the closing plus the $500 in earnest money.
Step #6 – Find the Perfect House
It wasn't just the down payment assistance that led me to the particular home I bought. Having worked for a hedge fund, I knew a little bit about how and why to do research, otherwise known as due dilligence, on a house.
I drove by this particular house several times before I was under contract:
- at night
- during the day
- in both the morning and afternoon rush hour (to gauge traffic)
I read press releases and news articles on activity in the area and dig a lot of google digging.
I spent time in the neighborhood, in the parks, I went to the neighborhood association meeting (if you're looking to buy in an “up and coming neighborhood” make sure it has an active neighborhood association, this has made all the difference when it comes to my comfort level and outlook on my neighborhood.)
Attending the Neighborhood Association meeting allowed me to hear about projects in the works for our area. A new city library is already under construction two blocks from my home, the school on my block has reopened, and a police precinct is planned for later this year. I also did a full inspection prior to closing and kept my eye out for budget busting expenses.
This way nothing can surprise you once you move in!
Step #7 – Don't Buy More Home than You Can Afford
This is probably one of the biggest steps to buy a house and one of the most important considerations when buying a home in your 20's and being a successful twenty-something homeowner. When you have a lower salary, large student loan payments, and other variables in your budget, it's important to buy a home you can comfortably afford.
- Think starter home vs. forever home
- Factor in your mortgage, taxes, fees, insurance and maintenance in your budget as well.
- And remember: Just because they approved you for an amount doesn't mean you have to buy up to that limit.