When you are in your 20s, you feel like the world is your oyster. You have this entirely new chapter in your life that you are about to face, so you want to be as independent as possible. While you can always go out and rent a place, you might be looking into the benefits of homeownership. After all, having your own little piece of land to call your own seems like a sweet deal.
However, this comes with a conundrum. With wages slowly increasing and the real estate market increasing quickly, it seems like buying a house isn’t quite in the cards for most young people in their 20s. Unless you belong to a wealthy family or just inherited a trust fund, the only way to afford a house is to incur some form of debt, such as home loans.
Is it practical to apply for a mortgage when you are young? A mortgage is perhaps the biggest debt that you can incur, and it takes a lot of financial discipline and responsibility. This article talks about what it takes to take out a mortgage in your 20s and if there is any practicality to it.
What is a mortgage?
According to Investopedia, a mortgage is a type of loan that you use to purchase a home. The property that you have purchased would serve as the collateral. The process of getting a mortgage is longer and more tedious than that of a credit card application. Make sure to be ready with all the documents required, as well as the summary of all your debts if you have any.
When is the right time to take out a mortgage?
Where do you see yourself in the next five years? When you take out a mortgage loan, it is a long term commitment, usually spread out over 30 years. Do you see yourself switching jobs or moving locations during the next five years? If you believe so, it might not be the time for you to take out a mortgage just yet. Only take out a mortgage when you feel that you are stable enough, both financially and in terms of your career.
Should you get a mortgage in your 20s?
Being a homeowner is not like renting. In fact, it takes on a lot of responsibility and maturity to become a successful homeowner. To save up for a house, you have to save up a lot of cash to afford the down payment.
According to Realtor, first-time home-owners are advised to prepare a down payment of 20% of their home. So if your prospective home has a selling price of $250,000, you have to shell out $50,000. If you cannot come up with that amount of money by yourself, you will have to look into other options such as taking out a mortgage or asking for financial help from your relatives.
If you want to take out a mortgage, get ready to take on some significant commitments in your life. For one thing, you need to check on your credit score. Make sure that you have no bad debts or that your name is not sent to the collections department.
Make a broad plan for yourself. The rule of saving up is to pay yourself first and then pay your bills. What’s left over can be used to spend on yourself for “fun.” However, if you find that a chunk of your paycheck goes to bills, find a way to cut your bills in half or make more money.
Look into the benefits of getting a starter home. When many young buyers purchase their first home, it is not necessarily their “forever home.” When you buy a starter home in your 20s, your mortgage payments will be more affordable since purchasing a cheaper house. You can afford a five or seven-year adjustable-rate mortgage and qualify for a lower interest rate than you would for one with a 30-year term, which would be the financially wiser move.
Once you have acquired your home, be sure to have a “rainy day fund” tucked away for home-related repairs such as roof leaks, gutter repairs, and gas leaks. This is especially true for young buyers who might not be as financially responsible compared to older generations.
A mortgage is a long-term commitment, and you will need to be financially stable and responsible for you to afford the payments. As always, always do your research before you get into something. If done right, a mortgage can build up your credit history, build up your equity, and provide you with tax deductions. As long as you discipline yourself and you have everything planned, things should run smoothly.