Young People and First-Time Homebuyers
By James Vaughn
Many young people in their 20s feel like buying their first home is simply out of reach. “I don’t make enough money,” “Prices are too high,” and “I don’t have enough credit because I’m too young,” represent some of the most commonly employed reasons (excuses) used by young people to avoid grabbing their dream of homeownership by the horns and delaying their entry into the most commonly employed means of long-term wealth-building in the US: real estate.
If you fall into the category of the young, 20-something who wants to own real estate but feels like it is out of reach, the first step to overcoming the challenge is to think about the reasons why it feels out of reach and then tackle each one with solutions. Were you told by a lender that your credit score is too low right now to qualify? Then devise ways to build credit, like using credit cards with the intent to pay them off each month, getting a small auto loan and paying it off, or paying off student loans. Also, don’t be afraid to shop around with other lenders who may be able to work with your unique situation, particularly if you are able to use a parent or someone else as a co-signer on the loan or source of down-payment funds.
Likewise, if you have been told that you do not make enough money to buy a livable home in your current market, there may be ways to beat this challenge in the short term beyond simply increasing your income. If you are able to present a solid business plan for how the property would generate income to be contributed toward the mortgage payment, such as through house-hacking (roommates or renting out other units in a duplex, triplex, or quadplex), some lenders may be able to consider the proposition in their overall view of your risk level. Furthermore, if you are able to locate a property that presents a viable investment opportunity, such as one that needs minor repairs or has multi-family potential, you could explore ways to partner with a local investor who replaces the traditional lender as your mortgage-holder.
If you are scared away from the market by high prices and interest rates, you should assess your situation and determine how long you intend to hold the property. If the answer is long term, then it may still make sense to buy now as you will hold the property through any downturn in the market and come out on the other side in a stronger position than if you had rented- with more equity and the ability to refinance if rates drop, or keep the rate you have locked in if they have gone up further. However, if you do not think you will hold the property long term, it may indeed make more sense to wait.
Whatever your decision, know that as a young first-time homebuyer, time is on your side and the most important thing is to develop a plan and stick to it. If you decide that now is the time to buy, chances are there is a way to make it happen. The Sands & Associates team is always ready to help determine the best time to buy and navigate a complex transaction.