Buying a home presents a different proposition for people in each stage of life. If you’re 20-something, you probably have a lot on your plate. You may be just out of school, dealing with student loans, and starting your professional career. But if you’re pulling down a steady paycheck, you might also be considering homeownership.
More than 70% of Gen Z—that is, people born after 1997—want to buy a home at some point, according to Realtor.com® research. Of that demographic group, 43% plan to buy a home in the next five years—with 45% of them already saving for that dream home.
“Buying a home in your 20s is ahead of the game,” says Danielle Hale, chief economist of Realtor.com. “The typical first-time homebuyer makes their initial home purchase in their early 30s. But buying a home at an earlier age can help build up equity—the savings in your home—so that you end up with more down the road.”
So there’s good reason to give notice to your roommate. Homeowners who bought their first properties before age 35 had the most housing wealth by age 60, according to a study by the Urban Institute.
If you’re in your 20s and considering your first home purchase, here are the crucial factors to take into account.
A good credit score
People in their 20s tend to have lower credit scores, averaging about 660, according to the credit-reporting agency Experian. (Luckily, that number is close to 670, which is considered a fair score.) The reason for the lower scores? People in their 20s may not have had the opportunity to establish their credit.
“Depending on how early in their career they are, those in their 20s may have difficulty qualifying for a loan, as most traditional lenders want to see someone working in their respective career field for at least two years,” says Trevor Halpern, the founder of Halpern Residential at North&Co., a Phoenix-based real estate group.
If your score is on the low side, ask your real estate agent for help connecting with a lender who might work with a young buyer, suggests Halpern. Or go with an unconventional, government-backed mortgage through the Federal Housing Authority, the U.S. Department of Agriculture, or the U.S. Department of Veterans Affairs. These loans allow for lower credit scores and down payments.
The good news about your future FICO score?
“One of the biggest benefits of purchasing a home in your 20s is the jump-start it provides for establishing and building credit,” says Jason Gelios, a real estate agent with Community Choice Reality in Southeastern Michigan. “Making mortgage payments on time can build up your credit scores dramatically by showing you can handle a larger payment and loan.”
A decent amount of savings
Qualifying for a mortgage is just part of buying a home. You’ll also need a chunk of savings for a down payment and need to make sure you can afford your monthly payment.
You’ve probably heard you need to put 20% of a home’s purchase price down, but sometimes 5% to 10% may be enough—with the right lender.
“A lot of younger first-time homeowners that I’ve helped this year qualified for down payment assistance programs,” says Jona Flores, a real estate agent with Re/Max Results in Maple Grove, MN. For example, the U.S. Department of Housing and Urban Development offers grants and other programs for first-time buyers, depending on where you live.
You also need to make sure you have savings to cover unexpected expenses, like a major home repair.
“I always say to have anywhere between 1% to 3% of the home’s value in reserves, because something is inevitably going to go wrong,” Flores says.
A five-year plan
Ask yourself where you see yourself in three, five, and seven years. Then think about whether you might experience major changes in your job, relationship, or lifestyle before buying a home.
“I always advise younger homebuyers to analyze where they are currently in their life, and determine if buying a home makes sense for their short- or long-term goals,” Gelios says. “It might not make sense to purchase a home if they’re looking to move within one or two years.”
Many young and first-time homebuyers expect to live in their homes for at least 10 years, according to Hale. But homeowners under 35 typically sell within five years.
“If you’re ready and can commit to being in one location, you shouldn’t wait,” adds Hale. “However, if you’re not ready, don’t rush it.”
A comparison of buying vs. renting
Depending on where you live, renting a home could be just as expensive or even more expensive than buying one. So if you’re planning to live in a location for several years, buying is something to consider.
“The idea is to have your monthly payment go to something that benefits you,” Halpern says.
Rent payments go straight into a landlord’s pocket. When you buy, the home usually appreciates and you might come out on top financially when you sell it later.
If you’re already renting, think about how much you’re paying a month and talk to a local real estate agent to find out how much a monthly mortgage payment might be. It will help you figure out if it’s feasible to buy and maintain a home with the monthly rent that you’re already paying.
A flexible list of what you want in a starter home
First-time homebuyers often buy smaller properties and are willing to compromise on size to get a good price, according to the National Association of Realtors®. Members of Generation Z, however, say their ideal home would have three bedrooms and four or more bathrooms, with a large backyard and space for a home office, according to a Realtor.com report.
“In your 20s, your life can change dramatically in a short period of time,” Hale says. “You want to think long term and see if a home will work for you even if your circumstances change a bit. But given the typically lower incomes and buying power for 20-somethings, they don’t need to try to buy their forever home as their first home. In other words, think medium term for a first home.”
So make a list of your needs and wants when searching for a home to buy. Consider the location, the home’s size, and how many bedrooms, bathrooms, and other rooms you need. And then be willing to compromise.