By the time you’re in your 20’s, you’ll most likely be ready for your own space. You may not be thinking about settling down and starting a family yet, but you’re probably considering your next housing step. A lot of young adults start off by renting, which can be very appealing. You get all of the benefits of having your own place, but you don’t have to worry about the responsibilities that come with being a homeowner.
There will probably come a point when you’ll realize you’d like to make the transition to becoming a homeowner, though. You’d rather your money go towards your mortgage, and build yourself some equity, instead of paying someone else’s mortgage for them. You probably want to be able to paint your walls the colours you like, decorate how you like, and maybe even have a pet.
The thought of buying a home while in your 20’s may seem a bit intimidating, but if you have a steady, decent paying job and a good credit history, it may be time to take a closer look at buying a home. Here are some considerations for you as you think about home ownership.
1. Think About Your Housing Needs
What type of home would you like to have? Do you prefer a home that has a backyard for your dog and a good sized patio area for BBQs with friends? Do you need your own space and would prefer a small condo that you can afford on your own? Would you rather live in a larger house and have roommates to help make it affordable? Would you prefer to live right in the heart of the city or on the outskirts of town where it’s a bit quieter? Having a list of both needs and wants is a great starting place and helps you narrow things down when it comes time for house hunting.
2. Think About Your Future
Remember that a home is a long-term commitment, and your circumstances will change with time. Do you want a new home that will be able to grow with you, so that if you do get married and start a family it will still be able to meet your needs for awhile?
Some people begin with a “starter home” knowing that in a few years they will most likely sell and buy something that better suits their needs. If this will be the case for you, don’t forget to consider resale value. Have a look at things like the location – is it in a desirable neighbourhood or is it on the corner of a busy street? What type of home is it? A three bedroom home will be more sought after than a one bedroom bachelor pad. What meets your needs now might not meet your needs in five years, and it may be difficult to sell.
3. Think About Building Equity
The desire to build equity may have been what initially led you down the path to buying a home. With each mortgage payment you make, some of the money goes towards the principal balance, and a percentage goes towards interest. The quicker you can pay down the balance of your loan the more equity you’ll have.
Down the road you will have the options of refinancing your mortgage, taking out a loan, and selling the house and using the money for a down payment on another home. Make sure you have a good understanding of your finances and what you can afford. Of course, talking to a mortgage lender or financial advisor can help make buying your first home a reality.
4. Think About What Can You Afford
It may be tempting to buy a home within the top of your budget, but you don’t want to end up being “House Poor.” This commonly used term is used to describe someone who has a nice place, but all of their money goes towards their mortgage and housing expenses with little to no funds left to do anything else with.
It may be a smarter decision to find a home that meets your needs and your budget, so you don’t feel as much of a financial strain and will still have some money left to enjoy your life!
A general guide is that your mortgage shouldn’t account for more than 30% of your income. Of course, this will vary depending on other bills, debt, and your lifestyle. So make sure to do the math before you decide.
5. Think About Your Budget
With homeownership comes some additional expenses that aren’t found when renting. Make sure you take into account things like condo fees and unexpected repair costs, just to be safe. You will also need home insurance to protect yourself in case of fire, flood, or other damages.
It’s smart to think beyond just the mortgage when it comes to monthly expenses when you’re a homeowner. Creating a “home fund” and adding a little bit to it each month is a great way to budget for any extra costs that pop up. You may not use it for a long time, but having that money set aside will give you greater peace of mind.
6. Think About All Your Options
You may think you have your heart set on a certain type of home. Perhaps you love historic character homes that are in the heart of downtown. But certain types of homes have their drawbacks. A historic home will most likely need a lot more repairs and maintenance than something newer, they will not be as energy efficient and will cost more in utilities.
Keep an open mind and have a look at all of the options in your price range. Look at duplexes, townhomes, condos, and single family homes. After looking into all options you will have a better idea of not only what appeals most to you, but what type of home suits you best at this time in your life.
7. Think About New Builds
Many first-time home buyers will write off new builds and just assume that they do not have the financing for this option. That may not be the case and there are many reasons why buying new is a smart investment. A new duplex or townhouse in a community on the edge of town may very well be within your price range.
The benefits of a new build include the options to personalize your home, choose paint colours, flooring and other finishing touches. Your home will also come with a new home warranty and you simply won’t have the maintenance and repair concern that you would have with a much older house. New homes are built with modern standards, are more energy efficient, and will have a better resale value.
Buying a home for the first time as a young adult may seem intimidating, but you’ll just need to do your homework, think everything through carefully, and work with your bank or mortgage lender to get the right information. Once you do, you’ll be well on your way to moving into the housing market and beginning to build equity. The ability to have your very own home is one of the best investments you’ll ever make.
Photo credits: woman using computer, calculating monthly budget