How Buy a House in Your 20’s – The Ultimate Guide

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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, I thought I'd finally lay it all out: the steps to buy a house, how to buy a house in your 20s (I did at the tender age 26 and paid only $1800 for closing and down payment), 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. Fun fact: 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. )

So even if you're unmarried, not quite wealthy, not where you want to be in your career, in debt – you can still buy a house. I've outlined the most important things to master below. If you use this guide, 90% of you should be able to make buying (and affording) your first home a reality.

Part I: The Most Important Things to Know

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.

Related: 5 Reasons to Rent Instead of Buy, The 5 Year Rule for Buying a House [MoneyNing],

Step #2 – Know (and Improve 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!

Related: The 6 Biggest Credit Score Mistakes, (And How You're Making Them)

Step #3 – Know 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.

Finally, don't be afraid to rate shop. We like to recommend LendingTree for this, which you can visit by clicking the link here. 

Related: FHA Loans: The Basics, Pros, and Cons [The Balance] , Buying a Home in 2018? Here's 16 Things to Know

Step #4 – Know How to Save (And Do It 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.

 

Related: How to Save for a Down Payment in 12 MonthsYes You Can Afford Your Own Home: Here's How [MyDomaine]

Most importantly, saving up for a big purchase is a sign of responsibility. It's a sign you are capable enough to be a homeowner.

Step #5 – Know What You Want in a Home (And Vet the Crap Out of It)

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!

Related: 10 Crucial Things to Do Before Buying Your First Home

Step #6 – 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.

 

 

Part II: My Story

You read the first paragraph. I bought my first home for $1800.  It definitely took some research and money savvy, but you too can buy a home for cheap…and it doesn't require a finance background or degree, which is why I wanted to share my story. For those interested in lowering the cost of getting into a first home before 30, below is a tutorial for how you, too, can investigate programs and make money smart decisions.

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.

Well…technically I bought it for it's $65,000 selling price, and coupled the cost of the renovation in with my 203k mortgage loan. $65k is cheap for a 3 bedroom/2 bath house, but with the renovations my mortgage loan ended up being around $123,000. Not so cheap, depending on who you are.

But I only had to pay $1,800.00 at closing, which is almost unheard of. Not to mention that ~$1800 is what many people pay for first month's rent and deposit on an apartment that they don't even own. I got lucky, but ultimately I was also able to buy a home for cheap by looking in distressed neighborhoods, asking the right questions, and not being scared off by the amount of paperwork many of these programs require you to fill out.

Still, taking on a downpayment assistance program with a lot of stipulations may not be for everyone.

There are a LOT of hoops to jump through.This is why it's important to assess your priorities and values before buying a home, which is something I discuss at length in my book, The Millennial Homeowner. Maybe you want to live in a better area, don't want a fixer, or maybe you just want your first home purchase to be (fairly) seamless the first time around. That's perfectly okay!

I ended up paying way more than $1800 later by taking on a renovation project I really couldn't handle, which put me into a lot of debt. I also made a ton of mistakes. Still, for those of you who have a limited budget or simply want to make a strong real estate investment, I outline my tips and tricks below.

 

How You Can Buy a Home for Cheap – The Step by Step Process to Getting Downpayment Assistance

Tip #1 -Ask Around

Your mortgage broker or real estate agent may mention down payment assistance programs to you, or they may not, which is why it always makes sense to ask. If you're in the beginning stages of the home buying process, do a little internet research of your own.

Just get started by opening up your browser, getting a new window,  navigating to google and type in {[state you live in] downpayment assistance programs}. Boom. Or you can check your eligibility on Downpaymentresource.com here.

Nervous about buying a home? Ease the pain with FBL’s free home buying checklist Click here to download !

Tip #2 – Exhaust Every Avenue

Veteran? Single Mother? You may qualify for additional grants and funds. Now isn't the time to be shy, but you have to ask around for those too.

Tip #3 – Get Organized

Any program you may qualify for is going to take a lot of paperwork and patience during the application process. After all, nothing comes free. If you want that money, you're going to have to invest the time into getting it. I recommend in this post to get organized with all your documents before you start actively searching for a home, and if you've done this well, the whole shebang will go a lot smoother.

You're going to have to pull tax records, employment forms, W-2's, W-9's and (potentially) other weirder demands like letters from former landlords, lovers, and family members.

Often it's the time and paperwork that keeps many (lazy) people from applying for these funds. In my opinion, that is leaving money on the table.

For about six hours worth of effort pulling documents and filling out paperwork, I received $15,000 in downpayment assistance from the city of Atlanta.

This was very worth it to me as with this money I was able to cover all but $1800 of my down payment, my closing costs, and put a little extra toward the principal on my first home.

 

Tip #4 – Think Long and Hard About if It's Worth It

Some programs (like mine) require you buy a home in a certain zip code in order to qualify for the moolah. Like in the case of the assistance I received, I was only eligible if I bought in a neighborhood hit hard by foreclosure. This is a dainty way of saying, “up and coming,” which is a daintier way of saying, “run down.”

I had doubts at first. Friends and family are terrified to come over. But honestly, I've never had a problem and the neighborhood has turned around a lot, as I expected it to when I was doing my due diligence. My program allowed me $15,000 dollars. That's a lot of money.

Honestly, if someone came up and offered you a check for 15k to live in an up-and-coming neighborhood, what would you say?

Maybe because I'm a more finance-minded person, I took the chance. And because the house was setting off my spidey sense that it would offer the greatest opportunity for a strong return on investment. Still, it's been a slow play. The down payment assistance I received is actually a “soft loan” and it's forgiven $3,000 each year I live in the home as a primary residence. So, if I stay in the home the full five years, I'll have the total amount forgiven. By the end of five years I won't owe a penny, but if I sell (or rent) early, I'll have to pay back the balance of whatever I haven't “worked off.”

It's definitely a long game and down payment assistance programs aren't for big-time investors.

But it's up to you to decide what you need in your home and its location.

Tip # 5 – Read the Fine Print

Some programs only allow for the money to go toward the downpayment and not closing costs, some vice versa, and some allow for both. Be sure to read the fine print of your program's terms to understand how much assistance you're getting as well as the expectations and repayment requirements (if any.)

Ideally, you'd want your program to allow for funds to be used at closing, as this is where first-time buyers incur the most out of pocket expense, in addition to the inspection and any unexpected repairs. 

That 15,000 helped pay for my down payment, most of the closing costs, and a little bit of the principal on the loan. The $1800 was my own contribution and a $1000 program fee. I would have had to bring double that amount had I not used the down payment assistance.

 

Part III: Additional Ways to Make Affording a Home a Reality

Option #1 – You Can Ask Mom and Dad

Don't qualify for any programs or don't have any available in your area? You can always hit up Mom and Dad for a tax-free gift (Up to $14k per person, so $28k for you and a spouse) to help cover the down payment or closing costs on your first home.

Because of stricter financing terms post-2008 housing crash, I recommend leveraging the money for closing and moving costs rather than factoring it into the financing of the home. This also helps ensure you only buy a home you can reasonably afford.

Option #2 – Rate Shop

Perhaps you won't be able to swing an $1800 home purchase. Perhaps you don't want to! The more you pay for a home, the more expensive it becomes, which is why if you want to keep costs low it's important to rate shop, from everything to the mortgage to the home insurance.

Getting the lowest interest rate on your mortgage is the #1 way to save money on your first home purchase. To comparison shop rates and lenders hassle-free, click here.

Option #3 – Buy for Now, Not Later

As millennials are waiting to enter the real estate market later in life (think 30's, not 20's), they're more likely to opt for that “forever home” and pay the price for it. The best way I was able to buy a home so cheaply is because I bought a cheap house – something small and in my budget that I could reasonably afford. Of course, this meant hard choices, and I know it is fairly obvious advice, but less is more. Personally, I believe home ownership should be a good move for your finances, and not something that contributes to more financial stress. 

Like this post? Get more first time home buying information in my book, The Millennial Homeowner: A Guide to Successfully Navigating Your First Home Purchase, now on Amazon. Click here to get your copy!

 

 

 

I bought a house at 26 making only 36k a year. Definitely tough, but you can do it. Here are some tips on how to buy a home in your 20s. It can be done!

 

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  • Ashley Ann Michele
    May 31, 2016 at 5:27 pm

    Do you mind sharing how much your home was?

    • Lauren Bowling
      May 31, 2016 at 6:51 pm

      65,000 for a foreclosed home in Atlanta in 2013. Thanks for commenting!

      • Ashley Ann Michele
        May 31, 2016 at 8:05 pm

        Wow! That is a great price. I am looking to relocate to GA, either Gwinnett or Dekalb county, from NY and I’m looking to buy a townhouse. If I can find a forclosure at that price, I will practically jump on it! Congratulations on your purchase (even if it is 3 years later)!

  • K. Sequeira
    August 5, 2015 at 8:34 am

    LBee, thanks for the insight. I’m 26 and looking to buy a home next year (I looked 2 years ago, but just didn’t get that gut feeling), so now I’m coming back with $15K more savings. I would love to know – what are your thoughts on putting less than 20% down? I’ve been determined to do that, but everyone else I talk to feels I’m putting off buying for renting when I could have afforded the house I wanted at 10-15% down.

    Thanks for the insight!

    • Lauren Bee
      August 5, 2015 at 9:51 am

      Hi K. – great question! Here’s an article I contributed to on yahoo finance that suggests many compelling alternatives to 20% down.

      I think 10-15% down is still a GREAT amount, especially given many first time buyers get away with 3-5% (I myself put down 3.5%) I have to pay $127.00 per month in private mortgage insurance for not being at 20% equity in the home, which adds up every month, but running the numbers with the PMI included, it is still cheaper for me to own than rent.

      Not sure what area you live in, so run the numbers for yourself, but I (personally) think it is okay to go in with less than 20% down. You could put in less than 20% and save the additional cash for taxes, home repairs, furniture…there are a lot of home expenses many first timers (myself included!) did not expect.

      Hope that helps!

  • Lisa
    November 18, 2014 at 6:41 pm

    I bought a house in my early 20s under much different circumstances (to save my mom during an ugly divorce/foreclosure). I didn’t expect/want to own a house at the time, but now I’m very grateful for the experience. If I had to do it again, I’d save up a lot more since closing costs/furniture are not cheap!

  • Sara
    November 18, 2014 at 5:07 pm

    A friend (in Chicago) just bought his parking spot for that much. I don’t understand how home prices are so moderate in Metro ATL. Actually, if you have any links, etc that explain I’d love to read. I’m a total urban planning nerd!

  • Michelle
    November 18, 2014 at 3:52 pm

    Good job on your first home purchase! I also get the surprised look when I say that I own. It gets on my damn nerves…but, that’s for another day.

    • Lauren Bowling
      November 30, 2014 at 8:30 pm

      Right? It’s weird. I think it’s the single woman part more than being young. Let’s vent!

  • Broke Millennial
    November 18, 2014 at 12:13 pm

    It’s amazing how many people “my age” are starting to buy homes. It’s sort of giving me the bug. Unfortunately, you can’t take advantage of those first-time home buyer gigs in most states unless you plan to actually be the one living there and not renting it out. I’d have to commit to leaving NYC in order to buy a property.

    You have some really great tips in here I never would’ve thought of, like going to the Neighborhood Association meeting. I’ll be phoning you up when I finally decide to buy!

    • Lauren Bowling
      November 18, 2014 at 12:55 pm

      Duh. Anything for you, bae. I’m surprised to hear you may not be committed to NYC for the longer term 🙂

  • The Stoic
    November 18, 2014 at 8:11 am

    Kudos for a well planned house purchase! I know you’ve had doubts about your decision to purchase in the past and you may have doubts in the future, but in the final analysis I think you will find it was one of your best financial moves. To do so at 26 is truly an accomplishment. Great work LB!

    All the best,
    The Stoic

    • Lauren Bowling
      November 18, 2014 at 12:54 pm

      You always manage to come in, comment, and make me feel good about my choices. I truly cherish you, Stoic! 🙂

  • Bridget
    November 17, 2014 at 11:10 pm

    The fact that houses are even priced at $65K is something I can’t wrap my head around.

    Even though you were making “less than $40,000”, the house is still ~1.5x your income. A unit in my condo complex is more than 3x my gross income =\

    You totally totally lucked out.. and I am so jealous I could eat my computer.

    Especially lucky that values going up with neighborhood improvements. You found a gem! Hold on to that thing!

    • Lauren Bowling
      November 18, 2014 at 12:54 pm

      I mean, it was a foreclosed home that pretty much needed to be rebuilt, but homes in Atlanta compared to most places are decidedly cheaper. You can live like a king here, and I know I’m lucky. I’ve debated selling, but I think for the long-term future I will rent until the market maxes out.

  • Lauren @ Cheapstudents.ca
    November 17, 2014 at 7:05 pm

    Thanks for the great article, and definitely some inspiration. I’ve recently moved home after university and want to move out of my parents home within the next 3 years AND own my own home/condo. Great to hear that you’ve done it and had a great strategy as well.

    • Lauren Bowling
      November 18, 2014 at 12:53 pm

      Moving home with the parents can be a great way to save up enough cash for a down payment. Smart move!

  • Jenna
    November 17, 2014 at 2:04 pm

    It’s awesome that you were able to do this.

    For my husband and I, we don’t know where we want to live. That’s our #1 reason for renting right now.

    • Lauren Bowling
      November 18, 2014 at 12:53 pm

      I think that is a perfectly acceptable reason not to buy. Owning a home isn’t a pair of handcuffs by any means, (as you can sell/rent if you need to leave) but it does tie you down in terms of the logistics/finances of moving towns and states.

  • Newlyweds on a Budget
    November 17, 2014 at 1:28 pm

    that is such a great opportunity you had that you worked hard for and took advantage of! And what a great investment!!!

    • Lauren Bowling
      November 18, 2014 at 12:52 pm

      Yes! It was a great investment, one that I hope keeps growing 🙂

  • Stefanie @ The Broke and Beautiful Life
    November 17, 2014 at 11:44 am

    It’s all about doing the homework. Unfortunately, even after doing the homework, I know I can’t afford a place in NYC, and I don’t think it’s my forever place either.

    • Lauren Bowling
      November 18, 2014 at 12:52 pm

      I almost…almost used my windfall to purchase a $150k 2 BR condo in the dodgier part of Harlem hoping it would eventually gentrify. I didn’t because I had doubts about staying in NYC. I looked it up and that building has homes listed for over $250 now!

  • Money Beagle
    November 17, 2014 at 11:33 am

    I bought my first place when I was 24. It was just a small condo and the mortgage wasn’t much more than I’d been paying in rent, but looking back, it was a pretty big deal and it was only possible because I saved, budgeted, and thought ahead to the future.

    • Lauren Bowling
      November 18, 2014 at 12:51 pm

      I think your last sentence sums it up perfectly. Thanks!

  • Jayson @ Monster Piggy Bank
    November 17, 2014 at 4:13 am

    I am also surprised as well! Never thought that around 20-year lady could manage to buy a house. Thanks for sharing your experience. If I could turn back time, I’d like to aggressively save money like the one you did!

  • Melanie @ My Alternate Life
    November 17, 2014 at 1:39 am

    Thanks for sharing your homeowner story! I do think it’s impressive you have a home at such a young age. That’s so rad the value of your house has doubled! You were also very smart to attend NA meetings and also see what the neighborhood is like at all hours. I’m not interested in home ownership as of now, as I foresee myself moving a lot.

    • Lauren Bowling
      November 17, 2014 at 10:38 am

      I think it is great that you know what you want and what you can/can accomodate. Sometimes I get a little stressed out that I wouldn’t be able to pack up and move in an instant, but those worries are few and far between.

  • Anne @ Money Propeller
    November 17, 2014 at 12:26 am

    Doubled? Even if that’s an over estimate from zillow, if it’s half that you’re doing awesome. Nice work on the neighbourhood association. Are those common in the south? I’ve never heard of one anywhere I’ve lived before.

    • Lauren Bowling
      November 17, 2014 at 10:37 am

      Not sure in the south, but definitely in Atlanta. We’ve got like a crazy amount of neighborhoods within the actual “city” and they all have neighborhood groups 🙂

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