Complete guide to buying a house in your 20s

In your 20s, buying a home might seem like a pipe dream. You may be a recent graduate, dealing with student loan debt, and doing it all on an entry–level salary with no raise in sight.

Though home buying can seem daunting, millions of millennials have done it. Millennials are now the single biggest group of homebuyers in our country – and many are buying houses solo, long before marriage or kids are even on their radar.

Now they’re being joined by even younger homebuyers as Gen Z enters adulthood.

But is this move right for you, too? More importantly, can you afford it? Let’s break it down.

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Benefits of buying a home in your 20s

The benefits of homeownership are huge – especially when you’re younger. A home is a long–term investment, and when you’re younger, you have more time for that investment to grow.

If you stay in the new home long enough, you could build serious wealth.

Real estate wealth can be flexible, too: You could:

Sell the home at a profit later on
Turn it into an income–earning rental property when you’re ready to move up
Borrow against your home’s value at low interest rates to generate cash
Enjoy fully paid–off housing during your retirement years (though those may be far down the line!)

Homeownership also helps 20–somethings because it means:

Consistent, reliable payments – No more annual rent hikes from your landlord
More control to customize the property – Forget “accent” walls. Paint, upgrade, renovate and do whatever you want to your home once you own it
Great credit – Getting a mortgage loan at a young age can help you establish a solid credit history, which means a good credit score and ample financial opportunities later on
Tax benefits – Homeownership comes with several potential tax benefits that might lower your tax burden and increase your annual refund

You could also save on monthly housing costs. Rents have been skyrocketing in most major cities in recent years, while average mortgage payments are often comparable to or lower than rent in many regions.

Finally, you have the option of renting your property on Airbnb or other similar sites to make extra cash as needed.

How young is too young to buy a house?

There’s no right or wrong time to purchase a house. Legally, you can buy and own real estate at the age of 18, but that doesn’t necessarily mean it’s the right move for every 18–year–old.

A home is a huge and expensive purchase, and it’s one you’ll need to live with for years or even decades of your life.

At a minimum, you will want to wait until you have consistent income, a stable job, and a decent credit score. This will allow you to get an affordable mortgage loan and cover that mortgage payment month after month while you’re in the home.

Minimum requirements to buy a house

Buying a home isn’t as hard as many first–time buyers think, especially when you meet the minimum requirements for a home loan.

Keep in mind, home buying guidelines are the same regardless of age. Whether you’re 18, 25, or 55, mortgage lenders will hold you to the same standards for income, savings, and credit.

However, these requirements do vary by loan program and lender. So when you’re applying for a home loan, it often pays to check your eligibility with more than one company.

Down payment

To get into a new home loan you’ll need to make a down payment of:

0% for USDA loans (must meet income and geographic rules)
0% for VA loans (available only to veterans and active–duty military)
3% for conventional loans
3.5% for FHA loans
20% for conventional loans without private mortgage insurance (PMI)

A 3% down payment on a $300,000 loan equals $9,000; to put 10% down you’d need $30,000.

If you have enough cash to exceed the minimum down payment requirement for your loan, you’re more likely to qualify for a lower rate mortgage which saves on long–term interest.

Credit score

Your credit score tells lenders a lot about your personal finances. But you won’t need pristine credit to qualify for a mortgage.

Minimum credit scores vary by lender and loan program, but they’re usually in this ballpark:

580 for FHA loans with 3.5% down
580 to 620 for VA loans
620 for conventional loans
640 for USDA loans

Exceeding your loan program’s minimum credit score – especially with a conventional loan – can help you lock in a lower interest rate, which will save you a lot in borrowing costs.

When you check your own credit, remember the scores you see in free credit monitoring apps tend to be higher than the FICO score lenders will see.

Debt–to–income ratio (DTI)

Your existing debt affects your mortgage eligibility. That’s why lenders measure your debt–to–income ratio. This ratio compares your monthly debt payments to your gross monthly income.

Maximum DTIs vary by loan type:

Conventional loans typically allow up to 43% DTI
FHA loans: 43% DTI is typical, but lenders could go up to 50% for otherwise strong applicants
VA loans: 41% DTI is typical for most lenders
USDA loans: 41% DTI

Want to measure your DTI? Just add up your loan payments (car loans, student loans, personal loans) along with your minimum credit card payments. Then divide that number by your gross monthly income. Multiply the answer by 100 to see your DTI.

Income

Mortgage lenders will check your income during the home buying process by looking at your W–2 forms or pay stubs from your job.

Seeing your income lets lenders calculate your DTI – and it shows whether your monthly cash flow can support your new monthly mortgage payment.

If you’re self–employed and don’t have pay stubs or W–2s, be sure to ask lenders about substituting tax forms or bank statements to show your income.

In addition, you typically need a consistent, two–year employment history to qualify for a mortgage. But some buyers can get around the two–year rule in special circumstances.

Closing costs

Closing costs pay for the administrative and legal services you’ll need to finalize a home purchase loan.

Expect to pay 2–5% of your loan amount in closing costs. That’s $6,000 to $15,000 for a $300,000 home loan.

Sometimes, you can ask the home seller to help pay these costs – but sellers aren’t required to help. You’d need to negotiate seller concessions into your contract to buy the home.

What to consider before buying a house in your 20s

Before starting the home buying process, consider all the financial and other lifestyle implications.

You should think about:

Your career

How established are you in your job? Do you expect to be there long? Could your career take you out of the area, therefore requiring a move?

You want to stay in the home at least long enough to recoup your closing costs and break even on the property. It’s typically only a good idea to buy if you’ll own the home for three to five years or longer.

Your income

How much do you make? How much of your after–tax income could you afford to put toward housing?

You can use a mortgage calculator to see how much your mortgage will likely cost. Make sure you’ll have the income to cover that, plus the costs of maintenance, repairs, and your regular monthly expenses like utilities, food, phone, car payment and more.

Your future

Is marriage in your future? Kids or pets? Can you afford a home that will accommodate those changes?

You’ll want to make sure a home purchase fits with your future life plans and goals.

Interest rates

What are mortgage interest rates at right now? Would it be better to wait until rates drop, making your monthly payment more affordable?

Talk to a reputable loan officer if you’re not sure on this one and be sure to shop around and compare rates. They can vary greatly from lender to lender.

Your local market

What are the housing market conditions in your area? Are home values rising? Are prices still affordable?

Along with providing a place to live, your single–family home should be a sound investment property.

You want to purchase a home that’s going to improve in value over time, thereby netting you profits. If you’re not sure if a home is a good investment in your city, talk to a local real estate agent for advice.

Your time commitment

There is also the responsibility factor. Owning a home requires a little more hands–on attention than renting, and you no longer have a landlord to make repairs (or foot the bill for them).

Make sure you’re ready to take on all that comes with homeownership before moving forward. It’s a good idea to have an emergency fund for unexpected expenses.

Steps to take before buying a house in your 20s

If your goals, the local market, and your finances all line up, then it might be time to buy your first house.

Here’s how you go about the home buying process:

1. Prepare your credit & finances

Even if you’re in a solid place with your income and expenses, it’s important to take some time to prep your finances before applying for a mortgage or starting your home search.

Help you better afford your monthly payment
Improve the mortgage rates you’ll be offered

Here’s where to start:

Work on your credit score

Start paying down your debts, beginning with your highest–interest ones first. If you have any collections to your name, settle those and make sure your accounts are in good standing.

You should also pull your credit report and check for any errors. Report these to the crediting agency to improve your score.

Avoid expensive cars

A $500 car payment might not seem huge, but according to our mortgage calculator, it can cut your home buying power by a whopping $80,000. (Considering a $100,000 salary, 5% mortgage rate and 5% down payment.)

A big car payment can also mean significantly less cash flow each month – particularly once a monthly mortgage payment is added to the mix.

Cut out unnecessary expenses

You’ll want to have a good cushion in your savings account before purchasing a home, as this helps cover unexpected expenses and gives you the “cash reserves” mortgage lenders look for.

Be prepared to cut out those morning coffee runs and reduce your spending wherever possible.

Be prepared for other associated costs

Your mortgage and down payment aren’t the only costs you’ll have when you buy a home.

Make sure you’re prepared to pay for moving expenses, new furniture, HOA dues, property taxes and more. Have some wiggle room in your budget to account for these.

Dealing with student loans on top of your future mortgage? Make sure you’re staying on top of those payments since they affect your credit score.

2. Minimize your down payment and closing costs

The old 20% down “rule” isn’t true, but you’ll still face some serious up–front costs when buying a home.

On top of your down payment, you’ll also have to cover closing costs – and those can range anywhere from 2% to 5% of the total purchase price of your home, depending on the lender.

Fortunately, there are ways you lower these up–front costs or at least make them easier to afford.

Choose a low-down payment loan – Down payment requirements vary by loan product. USDA and VA loans require nothing down (though they have strict eligibility requirements), while FHA loans start at 3.5%. Conventional loans require 3% or more. Keep in mind a lower down payment means more in monthly mortgage costs
Apply for down payment assistance programs and grants – There are loads of grants and loans that can help you cover your home’s down payment. These programs vary by state and municipality, so check with your local housing authority to see what options you might have for your home purchase
Look into closing cost assistance – There are also programs that can go toward closing costs, or you can see if the seller of your property will pay a portion of your fees. This is common if the home needs repairs or has been particularly slow to sell. Talk to your agent to see if this might be an option for your purchase

You can also get creative in paying for these up–front costs. Some young homebuyers are using crowdfunding to raise money for their down payments and closing costs, while others are seeking donations in lieu of wedding presents.

You can also get a side hustle to help you stash away savings for these extra expenses before buying your home.

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3. Find the right home

The first step in home shopping is to determine what sort of payment you can afford.

Use a mortgage calculator to home in on a good price range, and make sure it still leaves enough cash flow to cover your other monthly expenses (unexpected ones, too).

Once you have a solid price range in mind, start the search. You should:

Set up alerts on the major listing sites, including Zillow, Trulia and Realtor.com. Add filters for the size, age, and features of the house, so you get the most appropriate listing alerts possible
Consider working with a real estate agent. Make sure they’re familiar with the area you want to buy in
Have a list of “must–haves” and “nice–to–haves” when touring homes. Bring this list with you on every showing, so you can compare apples to apples
Drive around the neighborhood of any home you’re seriously considering. Get to know the area, talk to neighbors, and see what local amenities there are

If your local housing market is particularly expensive or competitive, you’ll need to move fast when a home you like is listed. Make it a point to see the property within a day or two, and be prepared to offer a decent earnest money deposit in order to get the seller’s attention.

Including a personalized note with your offer letter can also help you persuade a seller to choose your offer over another bidder’s.

4. Get your mortgage lined up

To start the mortgage process, you’ll first need to find the right lender. There are hundreds of potential options – from big banks and financial institutions to fintech firms, credit unions, and more.

A lender’s advertised rates usually won’t be the rates you’d actually get. So make sure to get a rate quote and breakdown of fees from each lender you consider

And always look at reviews, too. The customer experience can differ greatly from one lender to the next.

After you’ve found the right lender, you should:

Get pre-approved – This usually requires a short application and a little bit of info about your income and credit. Once approved, the lender will give you a “pre–approval letter,” which will state the exact loan amount you’ve been pre–approved to borrow. You can include this letter in any offers you make to increase the seller’s confidence
Complete your full mortgage application and lock in your rate – Once you’ve made an offer on a home and the seller has accepted, you’ll need to fill out the full mortgage application and provide all the financial documentation your lender requires. Talk to your loan officer about locking in your rate. Most lenders offer rate–locks of 30 days or more, meaning your interest rate can’t go up in that time period while your loan is being processed and underwritten
Communicate with your loan officer often – Keep in touch with your loan officer, as they’re the one spearheading your mortgage loan approval process. Make sure you respond quickly when they have questions or request additional documents. Any delays on your end will delay your closing date
Get the home inspected – Before you close on the home, you’ll want to have a professional home inspector evaluate the property for any deficiencies, safety issues, or potential repairs. If issues do crop up on the inspection, you can ask the seller to address these before closing or have them pay part of your closing costs to make up for the necessary repairs
Find a home insurance policy – You’ll also need to have homeowner’s insurance before you can close on the home. Just like with your lender, be sure to shop around for the best price here. You might also need flood insurance, depending on where the home is located

Finally, attend your closing. This will likely be at your title company, though it could also be online via a mobile notary or other digital process.

Either way, you will need to sign the closing papers and pay your down payment and closing costs via wire transfer or cashier’s check. Your loan officer should give you a closing disclosure sheet well before this date, so you know exactly how much you will owe.

Once all is said and done, you’ll get your keys and the home will be yours.

Homebuying in your 20s: FAQ

Saving at a young age can be difficult, especially if you have an entry–level job or have student loan debt. Your best bet is to set a monthly budget, determine what you can comfortably afford to set aside, and automate those savings however possible. You might want to designate a certain amount of each paycheck for savings or just schedule a monthly transfer from your checking account once a month. You can also consider a savings app like Digit or Acorns to help you save (and even make money) with your extra cash.

A mortgage loan is not an age–specific product. Your ability to get a mortgage depends on your credit score, your debts, your income, and the home you’re looking to purchase. As long as you have stable employment, solid income, and the funds to cover the mortgage payment for which you’re applying, you should be able to secure a loan at any age.

You don’t necessarily need a co–signer to get a mortgage, though it could come with some benefits. A co–signer’s income and credit score (if both numbers are good) could improve your interest rates and give you a bigger price range to work with. It also may help you more easily qualify for your loan. Still, there are some downsides to having a co–signer. For one, they’re on the hook if you, for some reason, are unable to pay your mortgage payment. This can put them in a tricky financial situation if they’re not prepared. They can also hurt your application and lower your interest rate if their credit score is lower than yours.

There’s no right or wrong age to buy a house – just the right or wrong time. Be sure to consider your financial situation, your employment, the local housing market, and your future goals and plans. Consult a real estate agent or loan officer for professional advice if you’re unsure.

There’s no set number here, but remember that when you rent, those monthly payments go toward your landlord’s mortgage – not yours. You’re not building wealth, and you’re never going to get that money back, no matter how long you stay on the property. When you own the home, your monthly payments go toward the equity in your home, and that means more revenue when you sell the property later on. So essentially, the longer you rent, the more money you throw away and the less wealth you can tap when you’re older.

Buying a house with no credit to your name is difficult, but it’s not impossible. In fact, some mortgage lenders are willing to look at alternative payment histories – like rent payments – that aren’t included in traditional credit scores. Keep in mind, though, that having no credit is different than having bad credit. Lenders can work with no credit, but bad credit will be a lot harder to overcome.

This depends on your personal goals and your financial scenario. Condos are typically smaller than single–family houses, though they come at a lower price point in most markets. They also usually mean less in maintenance (the condo association covers much of that) – a big plus if you’re not the handy or DIY type. Talk to an agent in your area about whether a condo or house is right for your situation.

Yes, it is smart to buy a house at any age if you’ve done your homework. Homeownership can bring both risks and rewards. So before you start house hunting, put yourself in position to succeed: Work on your credit profile and start saving up some money. Make sure you’re in a job you plan to stick with and find out for sure whether you want to live in your area long–term.

You might be eligible to buy a house at age 20 if you have a sufficient credit score, steady income, and enough savings to cover the down payment and closing costs. Also keep in mind most mortgage lenders require a two–year job history to qualify for a home loan. So if you’re brand new to your career, you might not have enough of an established work history to get financing.

Anyone 18 or older can buy a house. At any age, buying a house will be easier when you have a reliable income, some money in savings, and an established credit history. Plus, it’s better to wait until you’re ready to live in one place for the foreseeable future. With those things in mind, any age in your mid–20s and onward could be a realistic age to buy a house.

Complete guide to buying a house in your 20s | 2022