The idea of buying a house is exciting! After all, who doesn’t want their very own place to call home.
Buying a house at the ripe old age of 25 is easier said than done. But don’t listen to the naysayers, it is entirely possible. I’m living proof! Here’s how to buy a house at 25.
How I bought a house at 25
Personally, I bought my home at a turbulent time in our economy — March 2020. Even though the country’s economic state was questioned by many, my husband and I moved forward with purchasing our first home anyways.
We had been shopping for a home for around 10 months. In fact, we had even seen the property we would eventually call home on the market but passed because it was just too pricey. And so we waited.
When the world shut down in March 2020, we felt the pressure to find a new home because our small apartment was just too tiny when we were forced to stay there every day for two weeks. And that’s when we saw the price drop on a cute 3/1 in the neighborhood we wanted to live in.
We toured the place in late March 2020 and closed in April. Looking back, it was the perfect time to become homeowners because we had plenty of time to tackle all of the projects we envisioned for our new home.
Saving for a big down payment
Our journey to becoming homeowners wasn’t necessarily easy. Although we live in a relatively low cost of living area, purchasing a home is still a major financial commitment to make.
With that, we took steps along the way to make our goal achievable. The biggest thing we did was to save up for a 20% down payment. For those of you that live in areas with higher housing costs, you might laugh at the fact that we saved up around $30,000 for our home purchase. In the end, we spent $19,500 on the down payment and $7,500 on renovations.
But that was a substantial amount of money for us to save up. Especially when you consider that my main gig at the time was as a marine biologist and my husband is a grad student. Our savings strategy was pinned on building up a successful side hustle — freelance writing.
In addition to creating thousands of dollars of additional income each month, we focused on cutting the fat from our budget to build up these savings quickly. Once we had the money on hand, we felt prepared to tackle our home search head-on.
And I’m glad we made the sacrifices to save up! With that cash on hand, it was much easier to finalize our home purchase.
How you can buy a house in your 20s
So you want to buy a house at 25? It is entirely possible.
A lender may not care that you want to buy a house at 25. But they do care about your income, credit history, down payment, and overall financial picture.
Here’s how to buy a house at any age.
Establish a reliable income
Start the process by establishing a reliable income. You may find that your full-time career is enough to support a home purchase. But if not, don’t be afraid to tap into additional income opportunities to supplement your savings.
Build a credit history early
Mortgage lenders will want to see a solid credit history. Although the requirements vary from lender to lender, most lenders will want to see a credit score of around 620. That’s because Fannie Mae and Freddie Mac — the biggest buyers of mortgages set that as a bar for their conventional loans.
You can take action to boost your credit score by paying down existing debts, increasing your credit limits, and consistently making on-time payments.
Save for a down payment
A 20% down payment can be a smart move. When you make such a substantial down payment, the lender is willing to waive PMI — Private Mortgage Insurance. Essentially PMI is an extra monthly charge that the lender imposes to protect themselves in case you default on the loan. But if you put down at least 20%, you can skip this additional monthly cost.
If you can’t swing a 20% down payment, it is not the end of the world to pay PMI. And the good news is that there are many low down payment options out there. For example, you may only have to put down 3.5% on an FHA loan, 3% on a conventional loan, or 0% on a VA loan.
Ultimately, you have to decide for yourself what amount you want to put down. Keeping cash on hand can help you navigate emergencies and building your investments is important. There is a whole debate raging on the internet about whether or not you should invest or pay off your mortgage early. Personally, I think it boils down to your comfort level and only you can make that choice. But for me, throwing at least a hundred dollars at PMI every month was simply not my cup of tea.
Once you decide what down payment option you want to go for, start building up those savings. Personally, I like keeping savings for a big purchase like this in a separate account. With that, you can set up an automatic transfer to stick to your savings goals. Plus, you can’t accidentally overspend the funds if they are out of sight and out of mind.
Stick to what you can afford… not what the bank is willing to lend you
When it is time to start shopping, you’ll likely start the process with a mortgage preapproval. If preapproved, the lender will indicate how much they are willing to lend you. But just because the lender is ready to fork over the funds, doesn’t mean you have to max out your preapproval offer.
Instead, you should decide how large of a mortgage payment you feel comfortable committing to each month. As a rule of thumb, you shouldn’t spend more than 30% of your gross income on housing costs. But in addition to your mortgage payment, those costs should include utilities and other fees.
If you have other financial goals, you may want to keep your mortgage payments even lower. For example, my husband and I are pursuing FI, so we decided to cap out our mortgage at a much lower sum than the bank was willing to lend. A home purchase is a big financial decision that will impact your expenses for years to come. Make sure that your house spending matches your long-term financial goals.
A home purchase is big deal. Understandably, you want to find the very best home out there. But it is important to stay flexible throughout the home hunting process. You may have to compromise to find a great house that works for your budget.
Personally, I struggled with this. I may or may not have watched too many HGTV shows. And I had a dream home in mind. But the reality of our budget and the market was that we weren’t willing to spend what it would take for a turnkey home with all of the bells and whistles.
So instead, we found a cute home that needed a little bit of love. And we put in the work ourselves. My husband spearheaded the home renovation projects with new floors, paint, scraped ceilings, and more. I helped out where I could and repainted all of the kitchen cabinets. In the end, our home turned out to be adorable. But it took more time and effort than we originally expected. Don’t be afraid to stick to your budget and make adjustments to the home after you close the deal.
The bottom line: You can buy a house at 25!
Buying a house at 25 is entirely possible. But you’ll need to be a diligent saver that has a history of responsible credit management. Don’t get hung up on finding the ‘perfect’ home. Instead, focus on finding a home that suits your family’s needs and your finances for now.