5 lessons learned when purchasing property as a woman in her 20s.
1. Save, save, and guess what? Save!
This is extremely obvious, but it doesn't hurt to repeat. After I graduated college, I put a small amount of my income aside. I also picked up freelance projects, and blog sponsorships as an additional way to make money. I have also had a credit card since I was old enough to do so with the support of my parents. Therefore I have been building my credit history and showing I can make payments on time.
My money habits would not be possible without my parents. I was taught a lot about money and saving from a young age. My parents were not afraid to speak about money to my brother and I. We were raised to save with a purpose and not spend above our means. We used credit cards to build credit in hopes of making major life purchases such as a house. Although we NEVER bought items with our credit cards, we did not have the money in our accounts to pay back.
2. Ask for help and do your research.
Before you start looking for a home, gather all the information you need about home buying. Ask friends and family, read articles and books about the process. Below is a free online course I took that helped me understand the home buying process.
It is also good to remember you are not alone. There are services created to help first-time home buyers. I went with a conventional loan*, although an FHA* (Federal Housing Administration) loan, which is a mortgage through the government, is another option if you do not have a lot of funds to go towards the down payment of your home.
Another way to can get help is through your loved ones. I was fortunate enough to save money for my down payment, although through the option of a gift letter*, my family could pay for other expenses such as my closing costs*. If you are in a similar situation, this is a great option, although you have to have a good credit score* and a well-paying job or source of income.
3. Debt is not always a bad thing.
When applying for a home loan, they will want to know your debt-to-income* ratio. This was surprising because I thought they only cared about the money you had saved. Your debt is any payments you owe or slowly paying off, i.e., student loans, car loans, credit card bills, hospital bills, etc.
My only debt was my student loans when applying, which wasn't an issue. I fully own my car and always pay off my credit cards in advance. In most cases, everyone has debt, although your debt shouldn't be more than your overall income. Most mortgage companies want to see if you will still have money to afford your mortgage payments after paying your monthly bills (phone, internet, power, credit card, student loan, etc.). Therefore your overall debt should be less than the money you earn every month.
4. Race, gender, and age were important but didn't influence the process.
Looking back from when I started applying for a loan to currently being a homeowner, I have noticed my race and gender didn't affect the process. I was fortunate to work with a realtor and mortgage advisor that fully supported me. To my knowledge, I didn't face any discrimination. Which is not the same for everyone.
Although, when it came to my age, I could tell that could have been an issue if not for how I presented myself. Most of the time, I am very goofy and laidback. Although when it comes to money, I am serious. It is vital to have a balance.
Being young means there is a chance you will not be taken seriously. This makes sense because we do not have much life experience compared to older generations. Although, this is when asking the right questions and doing your research comes into play. When communicating with your loan advisor, speak/write in complete sentences and avoid slang. Come prepared with questions and fill out all forms to the best of your ability.
5. There are a lot of surprise fees and expenses.
Simply put... expect the unexpected. Always have additional money outside of your down payment and closing costs for things like your home inspection* and appraisal*. Don't forget you will also need money to move and if you buy an older home, you may need some renovations. Also, the bank transfer and payment fees stuck up on me. Look out for those too!
Key Words*
Disclaimer: these definitions were found online through various sources
- Conventional loan - A conventional loan is a mortgage loan that's not backed by a government agency.
- FHA loan - An FHA insured loan is a US Federal Housing Administration mortgage insurance backed mortgage loan that is provided by an FHA-approved lender.
- Gift letter - As it applies to your mortgage, a gift letter is a note from the donor that says you don't have to pay the money back. If you're using gift money for part – or all – of your down payment, you'll need the donor to write a gift letter to your mortgage company that makes it clear that the money is a gift and not a loan.
- Closing costs - are the expenses over and above the property's price that buyers and sellers usually incur to complete a real estate transaction. Those costs may include loan origination fees, discount points, appraisal fees, title searches, title insurance, surveys, taxes, deed recording fees, and credit report charges
- Credit score - Although ranges vary depending on the credit scoring model, generally credit scores from 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good; and 800 and up are considered excellent.
- Debt-to-income - is the percentage of your gross monthly income that goes to paying your monthly debt payments and is used by lenders to determine your borrowing risk.
- Home inspection - is an examination of a property's safety and current condition.
- Appraisal - Real estate appraisal, property valuation or land valuation is the process of developing an opinion of value for real property.
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