Millennials make up the largest group of homebuyers in America. They're purchasing homes at a median age of 34, according to the 2019 Home Buyers and Sellers Generational Trends Report from the National Association of Realtors (NAR).
In your 20s, you may be juggling paying off student loan debt with getting your career off the ground. But if you'd like to buy a home in your 30s, you may well need to start putting money away as soon as possible.
"Think of it as paying yourself first," says Heather Winston, a certified financial planner at retirement plan provider Principal in Des Moines, Iowa.
Home prices vary, depending on size and location: In Des Moines, Iowa, for example, which Grow determined was the No. 1 metro area for millennials to buy homes, the median home list price is $239,500, which is 20% lower than national figures.
The median price of homes purchased among buyers 28 and younger is $177,000, and $274,000 for buyers ages 28 to 39, according to a 2019 report from National Association of Realtors.
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Here are three money moves to make in your 20s that can make it easier to buy a home in your 30s.
Ideally, first-time homebuyers should aim to make a 20% down payment. Although in some cases you may be approved with only 3% to 3.5% down, you might then have to account for additional costs, like mortgage insurance.
Saving up all that cash takes time: For the average renter buying the median-priced home in America, it takes 6½ years to save for a 20% down payment. So for a home priced at $219,300, that 20% down comes out to $43,860.
Winston suggests automatically setting aside a portion of your earnings per paycheck in a high-yield savings account for a down payment. For example, if you need $43,860 and save $1,500 per month, it will take about two and a half years to save. She says if you currently save $500 per month for your down payment, it will take a little more than seven years to save 20%.
"This can be hard for young people just starting out or anyone who lives in an expensive real estate market. But if you are able to keep close to these percentages, you will increase your confidence in being able to cover expenses as a homeowner," she says.
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If you can't meet that 20% savings goal, don't stress. As you work up to gradually increasing your monthly contributions, you can also adjust your budget to squeeze out even a little extra cash to put towards a down payment.
"One of the first things you should do is figure out what your expenses are, and then determine whether those expenses represent what you value," says Mark La Spisa, a certified financial planner and president of Vermilion Financial Advisors in South Barrington, Illinois. Creating a personal budget can help you align your values with your short- and long-term goals, like housing, food, transportation, health, and paying down debt.
If you're having trouble cutting back, La Spisa recommends the rowboat strategy, a visualization that can help you prioritize crucial expenses. Start by mentally packing your expenses into a hypothetical rowboat and paddling to the middle of an imaginary ocean. Then dump all of those expenses overboard. You'll probably feel an urgency to save the most important ones, he says.
The expenses that sink to the bottom "are the expenses you need to cancel or get rid of, because they are not as important as your goal of [saving for] a down payment for a home," La Spisa says.
At the same time, make sure you're on track to keep earning more. Keep in mind that average pay increase for American workers has been around 3% a year in recent years. Although there's always an opportunity to earn more if you negotiating a raise or job hop.
Your credit history will be important when you start shopping around for mortgages. Lenders will will look at your credit score to determine how likely you are to pay back your loan, which will influence your interest rate.
You don't need a perfect credit score of 850 to get approved for a mortgage. A score of as low as 650 can work fine. However, you will generally get the best deal on interest rates with a score of 760 and above. Some of the best rates on a 30-year fixed-rate mortgage are about 3.7%, as of late October.
Here's how you can build up your credit history.
- Pay bills in full and on time every month: Making a late payment on a credit card is the No. 1 reason credit scores drop. Winston suggests paying more than the minimum required when possible.
- Keep your utilization rate low: The general rule of thumb is to keep your credit-to-debt ratio (your utilization rate) below 30%.
- Get a free credit score check: You can request one free credit report from any of the major three credit bureaus once a year.
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