How Can a Young Person Afford a House? 9 Practical Steps

how can a young person afford a house

If you are asking, how can a young person afford a house? You are not alone. Buying a home is genuinely becoming an American “Dream.” I emphasize the word “dream,” as it is becoming more impossible to achieve what should be an essential feat, especially for young people.

Newsweek Columnist Peter Rex writes, “A staggering 70 percent of Americans between the ages of 23 and 40 who want to buy a home say they can’t afford to… “This idea is supported by Kelsi Maree Borland, a commercial real estate independent journalist, who says, “Currently, at 47.9%, millennials have the lowest homeownership rates of any other generation.” Further, Apartment List offers a report based on a survey, which tells us that up to 18% of millennials see themselves as forever renters.

A young person can afford to buy a house by having more income and savings to afford a down payment. They also need to show that they can afford to make monthly payments on their mortgage throughout ownership. This means that they have to demonstrate stability at their workplace. A more stable economy will also make purchasing a house more reasonable, as nobody wants to pay expensive interest rates on the property.

So, why are young people not buying homes, why is it becoming less and less possible for them to afford a house, and what can they do to turn this reality around? This post will look into these issues and provide answers to help young people move forward with buying a house.

Why Are Less Young Person Afford a House?

Increase in House Prices Plus Decrease in Work Value

Let’s start with the most obvious reason a young person cannot afford a home today. House, prices are up nearly 120% since 1965, which is incredibly high. And this number is projected to stay low for a while. A struggling economy, and no equivalent income increase, means that many young people have to do more with less.

Poor Financial Habits

Many young people today are spending as they earn. This means they have no long-term savings and, therefore, cannot invest in property. Moving out for the first time, young people struggle to pay rent and afford other expenses such as food, utilities, and transportation, coupled with the cost of attending college for many.

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Once young people have figured out how to afford living outside their family homes, they spend leftover monies on entertainment and travel rather than saving. This means that many are living paycheck to paycheck. Aspirations such as buying a house seem too distant a dream for many young adults.

Proper parental or mentor guidance could help a young person plan better for the future. This includes developing aspirations for property investment, saving a percentage of earned income, aspiring to make more, investing income in stocks, etc.

Not Understanding the Process

Most young people cannot tell whether they can afford a house because of the obscure home ownership process. The steps can get cumbersome, starting with builders, real estate agents, land sellers, banks, etc. For a first-time buyer, where does one start?

Most people want to build homes from scratch, and by attending house fairs, you will meet many builders. Builders can introduce you to a lender with whom they have built relationships, but this does not guarantee that you will be funded. Before a builder can start building a house for you, you must be pre-approved by a lender and must make a deposit.

Some people do not want to wait 8 to 13 months to acquire a new home. They would instead move in within a week to a month of purchase. The option here is to buy an existing home.

If you are purchasing an existing home, you should consider using a real estate agent to navigate you through the process of identifying a home, finding inspectors for your home, and closing.

No Parental Help

Most young people do not have the savings to make a down payment on a new home. Just as parents help make a down payment on or co-sign your first car, it would be beneficial if they could do the same for a new home.

First-time homeowners are looked at with much skepticism by the lender, even where their incomes are high and have healthy savings. Lenders look for other tangible assets a prospective homeowner could have. Such as other real-estate property you own or have equity in, profitable business ownership, valuable cars that have been paid off, boats you own free and clear, and so on, and other investments.

Because they have had more time, parents can better show such assets.

how can a young person afford a house

Not Seeing the Full Picture

This thing called adulting is difficult. And this is simply because we have too high expectations of young adults, but think of it this way, even if they have been adulting for a decade, they are still very new in the game. There is a lot to learn for a young person, and not everyone has the same level of exposure.

Some young adults cannot afford to buy a house, not because they can’t if they try harder, but because it is not their aspiration. Young people have this misconception about buying into debt—purchasing cars for credit, for example.

The significant difference is in purchasing for credit a property like a car versus purchasing for credit a property like a house. The equity in the former depreciates while the latter appreciates. Purchasing property you can afford is almost always the right decision.

If young adults could see the complete picture in many things, they would probably make significant decisions.

10 Things a Young Person Can Do to Afford a House

According to Statista, approximately 58% of 18-24 year-olds lived with their parents in 2021, and about 17% of 25-34 year-olds. While this number keeps growing, there is a population of young people who don’t want to live with their parents and know they can do better than renting an apartment. If you are one of such people, the following tips should get you on your way to afford a house.

Have a Plan

Everything good project starts with a plan, and so should your goal of buying a home. Knowing what type of home you plan to purchase, where, and when will help you create a budget and a timeline to meet your goals.

Get a Financial Adviser

Getting a financial adviser to help you brainstorm your financial strength for buying a house is always a great idea. This is part of the planning process.

Save up for a Down Payment

If you don’t have a savings account, now is the time to consider getting one. It would be best if you put away a significant percentage of your income to have enough saved for a down payment, typically 20% of the cost of the home. You also have to show a good amount of money reserved in your account to show the lender that you can afford the house and will not be hanging in by the skin of your teeth.

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Savings accounts are not the best way to make money, as the rates are too low, and investments are preferred. But it is a great way to put away money and watch it accumulate consistently.

Get Pre-approved for a Mortgage

Before you start looking for a home, it’s a good idea to get pre-approved for a mortgage. This will give you an idea of how much home you can afford and will make you a more attractive buyer to sellers. Further, many real-estate agents would love to see that you have taken this step before they can show you certain homes.

To get pre-approved for a mortgage, simply contact your prospective lender and a loan officer will walk you through the steps. If you are not sure of which bank to use as a lender, simply have the real-estate agent you are working with refer you to one.

Start Investing

While this is an optional step, it is a better way to grow your money rather than just saving. If you are a bit savvy with investing, now may be the time. Instead of leaving your money to sit in a savings account, you can try to grow it through trading stocks or any other type of short-term investment that suits you.

Build Good Credit

To afford a house, a young person must show good credit. The economy is credit driven. This means that if you want to buy a home or any other property you cannot afford to make a straight purchase, you will like a lender to extend your credit. This means they will make the purchase, and you can slowly pay them off, including interest rates and service fees.

A good credit score, depending on what you can purchase, can be as low as the low 600s up to 800s.

A young person trying to purchase a home should have a credit score in the mid or high 700s.

A Young Person Should Earn Enough Income to Afford a House

Money and Good Credit are the two most essential things in qualifying for a mortgage loan. Income shows your purchasing strength and makes the lenders more confident that they will get the money they are leading you back. If you do not make enough money to afford a house, consider getting a second job, a side hustle, or a better job.

They Should Work Long Enough

To demonstrate stability, the individual applying for a loan to buy a new home must show that they are stable. In other words, they have the discipline to stay with their jobs. They have proven that they can hold a position for an extended period, won’t demonstrate a certain income today, and will be out of work the next.

Lenders such as banks like to see that you have been working at the same place for a minimum of two years. This doesn’t mean that they won’t give you a loan if you have switched jobs within this time. But within the two years, they don’t want to see any long gaps in employment.

Find Help for Down Payment and Other Costs

The down payment for most home loans is 20% of the cost of the home. This means that if you want to buy a $200K home, you must have $40K in cash at closing.

Coming up with a down payment can be a lot for a young person. Plus, you may have to purchase furniture after closing, which significantly adds to your expenses.

Some young people are lucky to find state programs for first-time home buyers to help reduce downpayment. Others may borrow from their parents or other people. A good number can save the downpayment before even considering buying a house.

Look for First-time Homebuyer Programs:

Building on the last point, many government and non-profit organizations offer first-time homebuyer programs that can help with down payments, closing costs, and other expenses.

Appy to Government-backed loans such as FHA, VA, and USDA loans can be helpful for first-time homebuyers with lower credit scores or lower down payments.

Find Homes you Can Afford:

Look for homes with potential: Instead of looking for a move-in ready home, consider looking for a home with potential that you can fix up over time. This can help you find a home that is more affordable.

Consider a smaller home: A smaller home will typically be less expensive than a larger one, so consider looking for a smaller home that you can afford.

Look for homes in less expensive areas: Consider looking for homes in less expensive areas, or areas that are up-and-coming and likely to appreciate in value over time.

Consider Alternative forms of Home-ownership:

Rent-to-own option: Rent-to-own option can be a good option for a young person who is not yet ready to commit to a mortgage, or does not qualify fully for a mortgage. This option allows a person to rent a home with the option to purchase it at a later date, with a portion of the rent going towards the purchase price.

Co-ownership: Another option is co-ownership, where a young person can purchase a home with a friend, family member, or partner. This can help with the financial burden and make it more affordable.

Look for creative financing options: Look for creative financing options such as owner financing, lease-to-own, or rent-to-own, which can make it easier for a young person to afford a home.

Strive to Have a Career and Not Just a Job

A profession versus a job suggests that you are vested in a specific industry. People with a career have more training or experience that sets them apart from others, such that they can better define what they do and quickly identify and hire over others.

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A career seems to suggest to the lender that if you lose your job, you will find something equivalent in a short time compared to Someone with an undefined career. It indicates that you are a lower-risk borrower.

They Should Also Build Strong References

References will probably be the least of your worries, but it allows the lender some peace of mind, knowing that Someone is willing to vouch for you. Also, if they lost contact with you while you were still owing on the mortgage loan, they have Someone to get in touch with.

A Few Final Words

This post has shared many tips on how a young person can afford a house. Now it is up to you to decide whether you will be the next homeowner. It is not impossible. You just have to get started.

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Christine Udeani, JD
Christine Udeani, JD

Christine is a dedicated mother of six young adults and a teenager who has made significant contributions to the online world through her writing and entrepreneurship. She attended Northwestern University, Strayer University, Thomas M Cooley School of Law, NWCULAW, and holds degrees in business, Law, and Communications. She shares tips and experiences to help young adults and their parents with this generation’s issues.

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