10 Tips for Buying a Home in Your 20s

a couple being counseled by a HUD Certified Housing Counselor that is providing them with tips for buying a home in their 20's.

Buying a home in your 20s is an investment in your future – and one that can grow significantly as you build equity. If you believe you are ready to take the leap from renting to owning, don’t let age deter you.

Tips on the path to homeownership

  1. Build Your Credit

It’s common for “20-somethings” to have low or even no credit. Obtain a credit report so you know where you stand. If your score is below 700, look to actively increase your credit score by:

  • Paying down credit cards
  • Paying bills on time
  • Settling any collections

If you have little to no credit history, it’s time to establish a credit profile and credit score. Consider opening a credit card and using it sparingly. Most importantly, pay the balance in full each month. This will have immediate benefits in building your credit profile, which all lenders rely on when making decisions on approving a loan.

Understanding your credit score and managing debt are foundational lessons in any first-time homebuyer course. The short of it is the better your credit score, the better terms you will receive on a mortgage loan, such as lower down payments and a lower interest rate. It is possible to secure a mortgage with a credit score in the mid to upper 600s, however, the terms will not be as favorable as those available with scores over 700.

  1. Save Aggressively

While building your credit, you will also want to build your savings. A mortgage calculator can help you determine how much of a mortgage payment you could afford at various levels of down payments and how much you need to save. That number is not a ceiling, though. The more you can and are willing to save, the more comfortably you will afford the down payment and mortgage payments.

  1. Plan for Additional Costs

We recommend planning for and saving above and beyond the down payment in order to cover the many other costs associated with purchasing and owning a home, such as:

  • Mortgage-related fees and closing costs
  • Moving costs
  • Renovations, minor or major
  • Repairs
  • Ongoing maintenance
  • Property insurance and real estate taxes

Additionally, most lenders will require you to have at least a few months’ worth of reserves or mortgage payments in the bank.

  1. Educate Yourself.

Like with many other purchases, research and education are paramount to a successful homebuying transaction. The process of homebuying, as well as securing a mortgage, is complex; you should look to equip yourself with as much information as you can obtain. Credit.org has many resources designed to facilitate and support your journey. We offer pre-purchase counseling, mortgage readiness assessments, and homebuyer education, both online and in person.

  1. Know Your Housing Needs

There’s a big difference between an undesirable characteristic and a flat-out deal-breaker in a home. Separate the former from the latter by listing out your wants vs. needs. This exercise will help you identify what really matters to you and avoid the pitfall of searching for the “perfect” home; understand that every home buyer makes a few compromises!

  1. Be Organized and Prepared

As your finances come into focus, you can get a head start on the mortgage process by gathering the following:

  • W2s from the past two years
  • Pay stubs from the past two pay periods
  • Bank statements from the past few months
  • Tax returns for the past two years
  • Photocopied identification
  • Investment account and asset statements (if applicable)

If you are married, both you and your spouse will eventually need to present all of the above to lenders.

  1. Get Pre-Approved

With all of the above documents in hand, you can seek pre-qualification and pre-approval for a mortgage. Being pre-qualified means you have met with a lender and received a ballpark figure for the loan amount and options you will qualify for. Pre-qualification is certainly a great place to start, but ideally, you will then move on to get pre-approved. This second step provides you with a printed letter outlining the exact loan amount you are approved for, possibly with a potential interest rate as well.

A pre-approval not only lets sellers know you are financially capable of buying but also enables you to expedite an offer on the home you choose to pursue. Learn more about getting pre-approved for a mortgage in this article.

  1. Stick to Your Budget

Remember, buying a home in your 20s should be a way of helping your financial future, not harming it. Don’t let the commonplace of paying “a little more” for everyday conveniences lure you into doing the same for a home. Stay within your confirmed budget unless you are absolutely positive you can comfortably afford to bump up for a desirable deal.

  1. Make Time

You’re busy with work, social life, and perhaps even starting your own family; now, you’re adding what can easily begin to feel like a second full-time job to your plate as you ramp up your home search. It’s doable, and that feeling when you receive the keys to your new home will be well worth the work, but be sure to set your schedule beforehand so you don’t become overwhelmed. Decide what days and times you will dedicate to viewing homes, coordinating with your real estate agent, and completing any necessary paperwork.

  1. Explore Options

While it’s important that you move swiftly on a home you believe is “the one,” don’t feel the need to search frantically. Look up different neighborhoods, attend open houses, schedule follow-up showings and ask questions. Being deliberate and detail-oriented extends to every aspect of your home search. From mortgage to move-in, seek all the information you need in order to make confident, savvy decisions. Lenders, sellers, and real estate agents alike understand how big of a decision this is for you.

As you’re preparing to buy a home in your 20s, let credit.org answer any questions you might have about the process. Give us a call at 1-800-431-8157 to speak with a personal homebuying counselor today!

Article written by
Melinda Opperman
Melinda Opperman is an exceptional educator who lives and breathes the creation and implementation of innovative ways to motivate and educate community members and students about financial literacy. Melinda joined credit.org in 2003 and has over two decades of experience in the industry.

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