How To Buy a Home in Your 20s

Millennial buyers (born 1990 to 1998) represent 43% of home buyers, which is the largest share of buyers compared to other generations, as of July 2021.

Gen Z—young adults born after 1997—are also poised to enter the housing market in the coming years.

More than 85% of the younger Gen Z members want to own a home and expect to own their first home by age 30, according to a 2019 survey by mortgage loan company Freddie Mac. If this occurs, it would be three years sooner than the average homebuying age of 33.

Buying a house in your 20s requires planning, and these tips can help.

Decide Where (and What) You Want To Buy

For Millennials looking to buy a home, real estate is all about location, location, location, but it’s also important to think about how long you plan to live in a given area. 

If there’s a possibility that you might move due to a job change or marriage in your 20s, consider how easily and quickly you’d be able to resell the house, if necessary. Even if you don’t see a move in your immediate future, questions to ask about what you want from a location include:

• Do you want to be close to shopping and restaurants?
• Would you like to live in an area that’s walkable or allows you to bike to places?
• Do you prefer the suburbs to the city?

If the home isn’t in your dream location, it could still work as a starter home, but you might want to move to a forever home in the future.

Buying a home in your 20s also means deciding what kind of property to buy:

• Single-family home
• Duplex or condo
• Townhome
• Tiny home

Depending on the type, you may have to pay additional fees, such as a homeowners association fee. You’ll also need to decide if you want a newer or older home and compare the costs. A fixer-upper could be yours for a bargain price, but you’ll likely need to spend time and money renovating it. On the other hand, a move-in ready home, may need fewer updates but could be more expensive.

Assess Your Financials

Before you can move ahead with buying a house in your 20s, you’ll need to give your finances a thorough review, especially if you're buying on your own. Several factors can influence whether the home fits your budget and whether you can afford to buy a home. All of these factors affect the mortgage approval process.

Credit Score

Credit history and your credit score are two of the most important factors lenders consider when approving mortgage loans. Your credit history shows all of the loans and credit cards you've had and tells lenders how responsible you are when managing debt. Your credit score is a numerical representation of your credit history and ability to pay back your debts on time.

FICO credit scores are used by 90% of top lenders. Millennials had an average credit score of 686 in 2021, while Gen Z had 679.

While a good credit score helps you qualify for a mortgage in your 20s, it doesn't guarantee you'll get the lowest interest rate. Low interest rates are ideal since a lower rate means less in total interest over the life of the loan. A lower rate can also lower your mortgage payment or help you afford a more expensive home. However, if you don't have enough credit history, you may need a co-signer.

Career

Good credit alone isn’t enough to determine whether you can afford to buy a house at a young age. You also need to consider your income, how likely your income is to stay the same or increase, and your career plans for changing jobs.

According to data from the Bureau of Labor Statistics (BLS) in the first quarter of 2022, workers aged 20 to 24 earned a median weekly income of $684, while workers aged 25 to 34 earned a median weekly income of $975. Your income can make a big difference in how much you can afford and what you’re approved for by a lender.

For example, if you earn $684 per week, that adds up to $35,568 per year. If you’ve been following the 50/30/20 budget and saving 20% of your earnings, you’d be saving $7,113.6 per year. It might take a while to save enough for both an emergency fund and a down payment.

If you earned $975 per week or $50,700 per year, you would save $10,140 per year, if you’re saving 20% of your income. In other words, calculating how much you can realistically save can provide a timeline of when you can afford to buy a home.

Don’t Forget the Down Payment 

When planning to buy a house in your 20s, you’ll have to know how much money you need for the down payment. Typically, the larger the down payment, the lower the monthly payment. A larger downpayment can also help you buy a more expensive house. You can use a mortgage calculator to test out different scenarios.

In 2021, Millennials from the ages of 23 to 31 years old put down 8% when purchasing a home. If you're a first-time homebuyer, programs exist that allow for lower down payments.

For example, with an FHA loan, you may qualify to put down 3.5% or 10% of the purchase price. However, when your down payment is less than 20%, you’ll likely need to pay private mortgage insurance (PMI).

Also, closing costs typically run between 2% and 5% of the home’s purchase price. So, if you're planning to buy a $200,000 home, you might need approximately $4,000 to $10,000 for closing costs.

You could save money for a down payment yourself, or ask parents or other family members to give or lend you the money. If you’re considering a down payment gift, be sure to check the mortgage lender’s requirements for documenting it properly.

Steps To Take Before Buying a House Young

Before buying a home in your 20s, it's important to review how much debt you have, including your car payment, student loans, and credit cards. Your outstanding debt affects your debt-to-income (DTI) ratio, which is the percentage of your income that goes to monthly debt payments.

In most cases, mortgage lenders cap the acceptable DTI ratio for homebuyers at 43%, though 36% may be more favorable.

If you have a lot of debt, meaning a high amount of your monthly income goes to paying debt, it may make it more challenging to qualify for a mortgage. You may need to pay down some of the debt to improve your chances of getting a mortgage with favorable terms. 

If you're in your 20s, you might have just enough income to qualify for the mortgage payment, but it's also important to consider the ongoing costs of home ownership, which can include:

• Maintenance and upkeep
• Repairs
• Home improvements

Property taxes and homeowners insurance can also be expensive. These costs can be escrowed, rolled into your mortgage payments, or paid directly, depending on the mortgage lender.

Pros and Cons of Buying a Home in Your 20s

Pros Explained

• Consistent payments: Unless you’re taking out an adjustable rate mortgage (ARM), your payments will be fixed. A fixed-rate mortgage loan can provide predictability when budgeting, unlike renting, where a landlord can increase your rent once your lease expires. 
• Customize the property: Owning a home means you can tailor it to your needs and tastes, such as changing the paint colors, installing new flooring, or renovating the kitchen or bathroom. 
• Tax benefits: Mortgage interest paid on a home loan is tax-deductible, as are property tax payments, up to certain limits. Tax deductions can reduce your taxable income for the year, which may help you owe less in taxes or get a larger tax refund. 
• Investment: Buying a home in your 20s can be a good investment. If you can rent it out, it could generate income. Or, if you decide to move in a few years and housing prices have increased, you could potentially sell it for a profit.

Cons Explained

• Needs may change: The home you buy in your 20s may not be the home that suits your lifestyle in your 30s. Getting married, having kids, or even getting a pet may prompt a move, so you may want to wait to buy until you’ve tackled those milestones. 
• Low rates aren’t guaranteed: Interest rates fluctuate, and the rates you qualify for aren’t guaranteed to be the lowest if you have fair or poor credit. You may benefit from waiting to apply for a mortgage until you improve your credit score.
• Maintenance and upkeep: One of the upsides of renting is that a landlord or property manager is responsible for making repairs or maintaining the property. As a homeowner, the burden and the cost of those things shift entirely to you.

Frequently Asked Questions