Becoming a homeowner before thirty may not be every twenty-something's dream, but for those who are ready to take the plunge, donning the title of homeowner can't come soon enough. If you're in your twenties and want to learn how to become a homeowner before thirty, we have a few valuable tips to put your aspirations to work.
So, what are the essential steps for first time home buyers to take if they want to buy a home before thirty successfully? Let's take a look.
How to Become A Homeowner Before 30
1. Decide You're Ready to Become a Homeowner
The first thing you're going to want to do when learning how to become a homeowner is deciding that you're truly ready to be one. Now, you're probably saying, "well, duh, that's why I'm here." What we really mean is, are you ready to handle everything--the good, the bad and the ugly-- that comes with owning a home? Sure, having a place to call your own is an invaluable luxury, but it also means you're financially and legally invested in a property that requires much more than a thirty-day notice to get off your hands.
The first thing you should do is evaluate your lifestyle; do you frequently travel and are rarely home as it is, or is homebody your middle name? Are you able to (and more importantly, willing to) handle the unexpected expenses, repairs and maintenance that come with owning a home? Making your first home purchase is a big deal with many personal and financial benefits, but also requires your love, care and attention. Be sure buying a home lines up with your current and long term goals you've set for yourself.
2. Commit To Doing The Work
Theodore Roosevelt once said, "nothing worth having comes easy." We like to think he was talking about buying a home. Now, we're not here to discourage you, but we'd be remiss to ignore the hard work and dedication that goes into buying a home, like producing a trustworthy loan application. There are four cornerstones to a solid loan application that anyone looking to buy a home before 30 needs to pay special attention to.
The Four Pillars Of A Strong Home Loan Application
The consensus among lenders is that your monthly mortgage payment should account for no more than 28% of your monthly gross income. Lenders also like to see that you've been employed for the last two years, ideally in the same field or position. Fluctuating jobs, differing titles and unsteady pay rates are red flags for lenders, so be wary of career changes while trying to buy a home.
In this buy now, pay later (plus interest) world fueled by instant gratification and the desire to have more, it can be extremely easy to overspend. By learning to live on less than you can afford, curbing the itch of instant gratification and maintaining the positive attitude that your sacrifices now are for a better future, you'll be one step closer to owning a home before 30.
Many lenders allow a debt-to-income ratio of only 36% (including the 28% that will eventually be going to your mortgage). To help put this into a workable goal, add up all of your monthly debts (student loans, car loans, health insurance, minimum credit card payments, etc.) and divide that number by your gross monthly income. The number produced is your current DTI ratio. Use it as a benchmark from which you can maintain or improve as you work to buy a home.
Strong Credit Score
Your credit score is a direct reflection of your spending habits and the capability to pay back your bills on time. It's also what lenders use to determine how risky a borrower you are. Your credit also plays a significant part in locking down a low-interest rate, like the current home mortgage rates seen in today's market. While obtaining a home loan with a low (580) credit score is possible, it will not produce the most attractive home loan options as a score in the 700s. If you haven't already, check in on your credit score (you can get one free credit report every year from annualcreditreport.com) and see what work needs to be done to get your credit score up as high as possible before you apply for a home loan.
Down Payment, Closing Costs & Emergency Savings
Even as a first time home buyer, lenders expect some sort of down payment to show you're ready to invest in your home. While many first-time homebuyer loan programs allow for as little as 3.5% down payment to secure a loan, the more money you have for a down payment, closing costs and saved for emergencies, the better. In fact, paying 20% down on your home will keep you from paying private mortgage insurance (PMI), special insurance added to your monthly mortgage payment. Plan to save between 2-5% of the total loan amount for closing costs and 3-6 months' worth of expenses for emergencies.
Talk to a Trusted Lender
Once your financial ducks are in a row, speak with a trusted lender about applying for a home loan pre-approval. This way, you can begin your home search knowing exactly what you can afford to buy on the current market and recruit a real estate agent in your area to help find the homes that fit your budget and needs.
As a first-time buyer, you're going to have mortgage questions during the home lending process you need to answer. They may even be as simple as "what is a mortgage?" or maybe as advanced as "how do I get an appraisal waiver? No matter what mortgage questions you have or where you are in your home buying journey, your trusted mortgage lender should have the tools, knowledge and know-how to get you into a home loan quickly, easily and 100% digitally. From simple mortgage calculators to e-closings, a trusted lender is your one-stop-shop for finding the mortgage products to turn the question of how to become a homeowner before thirty into a reality.