Table of Contents
What to keep in mind before buying a home
Why it can pay to buy a house in your 20s
Challenges to buying a home in your 20s
The bottom line
Aug 31, 2022
6 min read
If you are in your 20s and want to buy a house, or to start saving to buy one down the line, consider it as an important first step to have a solid financial plan.
Individuals in their 20s strive to reach many financial milestones. They might be building their first career, paying off student loans, getting out of credit card debt, or starting to save for retirement. For some, buying a home tops the list.
Successfully saving for a house can take years, or even decades, but that doesn’t mean it’s out of reach for those in their 20s. Here’s what young adults can do to prepare for buying a home, whether that goal is two years down the line or 20.
Long before it’s time to start shopping for a new house, there are some important things to consider.
According to recent data from the National Association of Realtors, a whopping 86% of homebuyers used a mortgage loan to finance their latest home purchase. Unless a buyer has an incredibly well-funded savings account, experiences a financial windfall, or buys a low-cost home, odds are high that a mortgage loan will be an important part of the process.
Mortgage loans may boost home affordability for many buyers, but they aren’t without some downsides:
These fees, which represent the interest charged on your principal loan balance, can increase the cost of your home each month and over the life of the loan.
At a minimum, this will include credit score and income thresholds.
This can include meeting home appraisal limits, passing inspection, paying private mortgage insurance (PMI) if necessary, making a required minimum down payment, and more.
If a mortgage loan is needed, it’s wise to begin preparing for the application process as early as possible. This means building a strong credit history and cleaning up any negative reports on the borrower’s credit, as these will lower their overall credit score. It may also mean increasing income to meet lender thresholds and researching down payment requirements in one’s local housing market.
According to the National Association of Realtors’ 2020 Home Buyers and Sellers Generational Trends report, 30% of homebuyers in their 20s said the most difficult part of buying a house was saving for the down payment. With conventional mortgage lenders requiring anywhere from 5% to 20% down, that’s hardly surprising.
As of the fourth quarter of 2021, the median home sales price across the U.S. was $408,100. Buyers facing a 20% down payment requirement would need to save nearly $82,000.
Even if a down payment of less than 20% is allowed, this typically means that the buyer will face the added cost of private mortgage insurance (PMI) for the first years of their loan. Premiums for this insurance—which is designed to protect the lender if the borrower defaults on their mortgage—are added to the borrower’s monthly mortgage payment until they reach the midpoint of their loan’s amortization schedule or about 20% equity, whichever comes first.
PMI can cost, on average, anywhere from 0.2% to 2% of the total loan amount annually, which could mean hundreds, if not thousands, of extra dollars.
A buyer’s credit score is another key factor when taking out a mortgage loan. Lower credit scores could mean larger down payment requirements, higher interest rates, or being denied for a loan altogether.
A first step to staying on top of one’s credit can be requesting a free credit report from each of the three credit bureaus (TransUnion, Experian, and Equifax) annually, checking for errors, and monitoring any changes throughout the year. According to FICO data, a recent late payment can result in a credit score drop of up to 180 points, so errors should be reported to the corresponding bureau so they can be investigated and removed.
Buyers can further strengthen their credit by:
Try Titan’s free Compound Interest Calculator to see how compounding could affect your investment returns.Learn More
There are often financial benefits for buyers who purchase a home in their 20s.
Rather than paying rent for an apartment, condo, or house each month and having nothing to show for it at the end of a lease, buying a home allows people in their 20s to start building equity.
A buyer in their 20s who takes out a standard 30-year mortgage will pay off the loan no later than their 50s, giving them a better chance of entering retirement without the burden of a monthly mortgage payment.
Younger homebuyers have more opportunities to use their home as an income source. They might buy a house with extra bedrooms, then rent those to roommates, subletters, or short- or long-term renters. And if they later decide to move on to a home that’s larger, newer, or in a different area? That first house can generate income as a rental property.
Buying a home in your 20s can be easier said than done. For many potential homebuyers, there are some important challenges to note.
Sixty-six percent of recent public college graduates walked the commencement stage with student-loan debt, while 83% of graduates from for-profit colleges did the same. There’s a high likelihood that potential homebuyers in their 20s will still be working to pay off debt. Purchasing a home, and putting thousands of dollars toward a down payment, could delay those efforts.
A homebuyer’s credit history and score are taken into account when applying for a mortgage loan and can impact everything from down payment requirements to the interest rate on the loan. Buyers in their 20s have had less time to establish a positive credit history or get out of debt and may not earn enough to meet lenders’ debt-to-income (DTI) requirements.
Down payments, mortgage costs, property taxes, repairs, renovations…every extra dollar put into real estate is a dollar that can’t be invested elsewhere. For buyers in their 20s, this lost compound interest and time in the market could be detrimental, resulting in missed growth and investment opportunities. Depending on the circumstances—ranging from housing market trends to stock market fluctuations, retirement account returns, and even the rates on high-yield savings accounts—buyers in their 20s could potentially recognize better returns when putting their money into an investment portfolio, rather than purchasing a home.
Few adults will reach their peak income in their 20s, but homeownership can eat away at whatever income they do have. There are unexpected repair bills to consider: everything from a new water heater, which runs an average of $1,200 to install, to a replacement roof, at a national average of more than $14,000. There are market downturns. And rising property taxes can make homeownership more expensive year over year, without much warning—take San Diego, California, which saw a 10.2% rise in property taxes in 2020. Owning (and affording) a home at a younger age may be more difficult to manage than owning a home years later, when one’s income is potentially higher.
Buying a home is no small feat, regardless of one’s age. It often requires many years of diligent saving in order to be successful. If you are in your 20s and want to buy a house—or to start saving to buy one down the line—having a solid financial plan is an important first step.
At Titan, we are value investors: we aim to manage our portfolios with a steady focus on fundamentals and an eye on massive long-term growth potential. Investing with Titan is easy, transparent, and effective.
Get started today.
Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, Titan has not independently verified such information and makes no representations about the accuracy of the information or its appropriateness for a given situation. In addition, this content may include third-party advertisements; Titan has not reviewed such advertisements and does not endorse any advertising content contained therein.
This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any strategy managed by Titan. Any investments referred to, or described are not representative of all investments in strategies managed by Titan, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results.
Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see Titan’s Legal Page for additional important information.
You might also like
Can You Use Your Roth IRA to Buy a House?
A Roth IRA offers a way to use funds before retirement for large expenses like a home, avoiding an early withdrawal penalty. Although there are risks associated with it.
How to Save for a Down Payment on a House
Buying a home is one of the single biggest purchases that many adults will ever make. And with median home prices across the country rising faster than ever —reaching an all-time high of $408,000 in 2021—this investment is becoming even more significant.
How to Save for a House
Saving up for a down payment is one of many important financial goals in life. Before a future homeowner invests in such a large purchase, it’s important to have a strong financial foundation.
© Copyright 2023 Titan Global Capital Management USA LLC. All Rights Reserved.
Please refer to Titan's Program Brochure for important additional information. Certain investments are not suitable for all investors. Before investing, you should consider your investment objectives and any fees charged by Titan. The rate of return on investments can vary widely over time, especially for long term investments. Investment losses are possible, including the potential loss of all amounts invested, including principal. Brokerage services are provided to Titan Clients by Titan Global Technologies LLC and Apex Clearing Corporation, both registered broker-dealers and members of FINRA/SIPC. For more information, visit our disclosures page. You may check the background of these firms by visiting FINRA's BrokerCheck.
Various Registered Investment Company products (“Third Party Funds”) offered by third party fund families and investment companies are made available on the platform. Some of these Third Party Funds are offered through Titan Global Technologies LLC. Other Third Party Funds are offered to advisory clients by Titan. Before investing in such Third Party Funds you should consult the specific supplemental information available for each product. Please refer to Titan's Program Brochure for important additional information. Certain Third Party Funds that are available on Titan’s platform are interval funds. Investments in interval funds are highly speculative and subject to a lack of liquidity that is generally available in other types of investments. Actual investment return and principal value is likely to fluctuate and may depreciate in value when redeemed. Liquidity and distributions are not guaranteed, and are subject to availability at the discretion of the Third Party Fund.
The cash sweep program is made available in coordination with Apex Clearing Corporation through Titan Global Technologies LLC. Please visit www.titan.com/legal for applicable terms and conditions and important disclosures.
Cryptocurrency advisory services are provided by Titan. Cryptocurrency trading is provided by Bakkt Crypto Solutions LLC ("Bakkt Crypto"). Bakkt Crypto is not a registered broker-dealer or a member of SIPC or FINRA. Cryptocurrencies are not securities and are not FDIC or SIPC insured. Bakkt Crypto is licensed to engage in virtual currency business activity by the New York State Department of Financial Services. Cryptocurrency execution services are provided by Bakkt Crypto (NMLS ID 1828849) through a software licensing agreement between Bakkt Crypto and Titan. Please ensure that you fully understand the risks involved before trading: bakkt.com/disclosures.
Information provided by Titan Support is for informational and general educational purposes only and is not investment or financial advice.
Contact Titan at firstname.lastname@example.org. 508 LaGuardia Place NY, NY 10012.