Think You're Too Young To Buy a House?
A couple of generations ago most people got married and settled down while still in their early 20’s. This meant that they also purchased houses earlier in life. And, while marriage and children may not be on your mind, homeownership may be and that is a really good thing.
The difference between buying your first house in your mid 20’s to early 30’s and waiting could mean you miss out on a significant amount of home equity.
The Urban Institute has been studying why millennials have lower homeownership rates than prior generations. While most people may think that living with your parents would help you save for a significant down payment, this study’s findings show that is not the case. What they do find is that people are getting married later in life which may be one reason why they are putting off homeownership.
The most interesting fact is this, the authors found no long-term advantage to living with parents. Let me say this again, no long term advantage can be had by living at home with your parents. In fact, their results suggest that living with parents has NEGATIVE long-term economic consequences. Because people living with their parents do not always save for a larger down payment or buy more expensive houses, they have less in equity than someone who bought earlier in life.
Equity and why it matters.
Unless you are living somewhere rent free then you are paying a mortgage – either it is your mortgage or your landlords. Either you are increasing your landlord’s equity or you are increasing your own. Based on the latest data, home values will appreciate an average of 3% per year. This means that by owning your home and paying your monthly mortgage you are increasing your family’s wealth.
The earlier you purchase your first home the more equity you will have once you reach retirement age. The latest Survey of Consumer Finances conducted by the Federal Reserve reveals that the net worth of a homeowner is 44 times greater than that of a renter. You’re first house does not have to be your last house but the idea is to start earlier. The earlier you start owning a home the greater the equity you will have later in life.
How to buy a house.
There are several resources available to first time homebuyers. The first step is education. First time homebuyer classes are a good place to start. Avenue offers a First Time Homebuyer Education class. Classes are offered both in person and online. Our class gives you all the information you need to be the best advocate for yourself during the home buying process.
Here’s what you'll do in the First-Time Homebuyer’s Class:
- Review your finances to determine an affordable home purchase price and loan amount for your budget.
- Learn about different home loan options and how to decide which one is best for you.
- Understand the process of buying a home so you can avoid pitfalls and feel confident at each decision point.
- Prepare yourself to protect your investment for the long term.
- Learn if you are eligible for assistance programs that can help with down payments and closing costs.
After you take the class you will be able to sign up for homeowner counseling with a housing counselor.
Here’s what you’ll do in Individualized Homebuyer Counseling:
- Complete a budget to determine the total mortgage payment you can afford in the long-term.
- Calculate your debt-to-income ratio (DTI requirements)—the way a lender will—to estimate how much mortgage you might be approved for.
- Look at different payment scenarios you would face, based on different loan amounts, products, terms, and assistance programs you are eligible for.
- Discuss questions that pertain to your particular situation.
- Develop an Action Plan to guide you along your next steps.