In most states, you only have to be 18-years old to buy a house, but it’s not just the number that matters. Purchasing a home young can feel like a great accomplishment, and it has its advantages, but there are signs you should look for and consequences to consider before jumping in headfirst.
Signs You’re Ready to Buy a Home
Like we said, age is just a number. Yes, technically, you could buy a house at 18 as it is the legal age, but if you don’t show signs of readiness, it could be a terrible decision. So how do you know when you’re ready for a home purchase? Look for these signs.
You Have Good Credit
The credit requirements to get a mortgage loan are the most important factors to focus on first. If you’re looking at buying a house at 18, you may not have enough credit established yet. You can’t have a credit score unless you’ve had credit, so unless you started young, you may need a co-signer or wait until you have a good credit score to buy a house.
Every lender and loan program has a different credit score requirement. On average, you’ll need at least a 660 credit score. For now, focus on your credit history and make sure it shows you paying your bills on time, using credit cards responsibly, and knowing how to juggle both revolving debt (credit cards) and installment debt (car loan or personal loan).
You Have a Low Debt-To-Income Ratio
You need an income to buy a house; there’s no way around it. But it’s not just your income lenders consider. They compare your income to your current debts and the potential mortgage you want. This close look at your financial situation tells lenders if you can afford the mortgage.
Like credit scores, lenders have different requirements. In general, you should have less than 43% of your gross monthly income (income before taxes), accounted for and this includes the new mortgage, any minimum credit card payments, and installment loan payments.
You Have Money for a Down Payment and Closing Costs
You won’t need 20% down on a home for most loan programs, but you will need some money to put down on it. FHA loans, for example, require a small down payment of just 3.5%, which is $3,500 for every $100,000 you borrow.
Aside from the down payment, you’ll need to pay closing costs. The exact cost varies by lender, but anticipate 3% – 5% of the loan amount or $3,000 – $5,000 for every $100,000 you borrow. Some loan programs allow you to ask the lender to cover the costs, but not all sellers are willing.
You Have Money in an Emergency Fund
Homeowners have a lot of responsibility on them. If you can’t make your mortgage payments, you could lose your home. Having an established emergency fund can reduce this risk. Lenders don’t always require proof of ‘reserves’ or money set aside, but for yourself, it’s good to have the funds available should you lose your job or be unable to work.
You Have a Stable Job
If you’re still ‘finding yourself’ and looking for the right career, it’s best not to invest in a home quite yet. When you commit to a mortgage, you commit to paying it off in the next 15 to 30 years, making your monthly payment on time each month.
If you don’t have stable employment, it’s hard to commit to making your payments on time. In addition, late payments can damage your credit and cause you to lose your home.
You’re Ready to Put Down Roots
Homeowners don’t move often; they stay in a home for a few years. So if you aren’t sure where you want to settle down yet and are still looking for the ‘perfect’ spot, wait to buy a home until you’re sure you’re ready to commit.
You’re Ready to Complete Legal Agreements
Buying a house is a very adult thing to do. You’ll sign many legal agreements that have serious consequences if you don’t follow them or don’t tell the truth. So make sure you’re capable of understanding the agreements and following through on the requirements in them.
Buying a House Young
If you find yourself asking”how old do you have to be to buy a house,” you’re probably also wondering if it’s a good idea or not. Here are the pros and cons of buying a house young:
You’ll Have Consistent Payments
You know how much your mortgage payments are each month when you own a home. You don’t have to worry about fluctuating rents due to inflation or changing where you live.
You can Enjoy Consistent Living Arrangements
When you rent, you may have to find a new place to live each year when the lease ends. If you own a home, though, you know where you’ll live until you sell it and buy another home or make other living arrangements.
You May Get Tax Benefits
Homeowners that itemize their deductions can write off interest paid on their mortgage, plus up to the first $10,000 paid in real estate taxes. This can lower your tax liabilities, leaving more money in your pocket.
Buying a House Can Feel Like Being Trapped
Unlike renting, you can’t just walk away from a house at the end of the lease. There isn’t a lease – you are the homeowner with a mortgage that lasts for 15 to 30 years. You could sell the home, but it doesn’t happen overnight. It can take weeks or even months to sell the house and start over.
You Can Damage Your Credit
If you buy a home before you’re ready, you might default on the loan, hurting your credit and possibly losing your home. In addition, a foreclosure stays on your credit report for 7 years, making it hard to get any new credit during that time.
It Can Be Overwhelming
When you own a home, you’re responsible for the maintenance and upkeep. It’s a lot of work and money to handle homeownership. You must also pay the property taxes and keep the home insured. If you don’t, you put yourself at risk of force-placed insurance at a much higher cost and tax liens, which could cause you to lose your home.
Can a Family Member Cosign?
Even when you’re over 18-years old, you may still need a co-signer to qualify for a mortgage. If you don’t have established credit yet, you have too much student loan debt, or don’t have enough income to cover the payments yet, a family member such as a parent can co-sign for you.
The right cosigner is someone with good credit and a stable income. Be careful, though. If you use a co-signer and you default on your loan, the co-signer becomes liable for the debt.
Reasons to Buy Houses at a Young Age
A Place of Their Own
Turning 18 doesn’t make you feel like an adult. However, the ‘adult things’ you do give that feeling, and there’s no better way than buying a home.
Like any investment, there’s no guarantee your home value will go up, but the chances are good, especially if you invest for a long time. In addition, real estate usually hedges against inflation and diversifies your investment portfolio, so you aren’t putting all your money into risky stocks or low-paying bonds.
Buying a home is like a forced savings account. Your monthly payments reduce the loan’s principal, giving you more home equity. Your equity is the difference between your home’s value and the outstanding loan balance. Therefore, each monthly payment you make decreases the loan’s balance and increases your net worth.
Reasons Not to Buy a House Young
If you don’t have emergency funds available or stable income yet, it’s not smart to buy a house young. Wait until you have stable income and employment and feel established in your career. If you’re still figuring out what you want to do when you grow up or have a large number of student loans, hold off on buying a house.
Uncertain Wants/Needs in a Home
Don’t commit if you aren’t sure what you want in a home yet. Buying a house requires you to commit for at least a few years unless you want to lose a lot of money. So waiting until you are certain about at least the next few years and what features/space a should have is best.
Statistics: Home Ownership Ages
The National Association of Realtors publishes a yearly report showing the number of buyers within each age group. Here are the latest numbers they shared:
- Ages 18 – 21 – 2% of buyers
- Younger millennials – 14%
- Older millennials – 23%
- Gen X’ers – 24%
- Young boomers – 18%
- Older boomers – 14%
- Silent generation – 5%
Qualifying for a Loan
Qualifying for a loan depends on what loan programs you look at and where you get the loan. You have many options, including credit unions, local banks, mortgage lenders, and mortgage brokers. On average, here’s what to expect.
You’ll need good credit to secure a mortgage, but it doesn’t have to be perfect. A conventional loan requires a credit score of 680+, but FHA loans allow credit scores as low as 580.
Debt to Income Ratio
Your debt-to-income ratio is a big part of your loan approval too. Your DTI tells lenders how much of your income is already committed. Ideally, your DTI should be 43% or less to get approved. However, if you have a DTI higher than 43%, you may still qualify if you have compensating factors, such as a large emergency fund or a great credit score.
Types of Loans
First-time homebuyers have many loan options available, including the following loans.
Conventional loans are for borrowers with great credit. These loans are backed by Fannie Mae or Freddie Mac. If you have a credit score of 660 – 680, a DTI of 36% – 43%, and stable employment, you may be a good candidate.
You’ll need a 3% down payment, and you’ll pay Private Mortgage Insurance until you owe less than 80% of the home’s appraised value.
FHA loans are government-backed loan that is great for young homebuyers. They have more flexible underwriting guidelines, including credit scores of just 580+, a DTI of up to 43%, and stable income/employment for the last 2 years.
FHA loans require 3.5% down payments for first-time homebuyers, and you’ll pay mortgage insurance for the life of the loan. However, FHA loans don’t provide the option to remove mortgage insurance if you owe less than 80% of the home’s value.
If you’re a veteran of the military, you may qualify for VA financing, which requires no money down and has the most flexible underwriting guidelines. The VA doesn’t have a bare minimum credit score requirement, but most lenders prefer a 620 – 640 score, a 43% or lower DTI, and stable income and employment for the last 2 years.
VA loans don’t require a down payment, and they also don’t require mortgage insurance. Veterans pay an upfront funding fee of 2.3% of the loan amount, but there isn’t any monthly mortgage insurance.
Available Loans and Grants for First Time Homebuyers
Young homebuyers are often first-time homebuyers, opening many excellent possibilities for attractive loans, assistance programs, and grants.
FHA loans are a great first-time homebuyer loan because of the low credit score required and other flexible underwriting guidelines. In addition, it only requires a 3.5% down payment, and you may even be able to accept gift funds to cover the down payment.
Your real estate agent or loan officer should be able to help you find grants for first-time homebuyers in your state. Every state has different programs available, most of which help first-time buyers cover closing costs.
Your employer may also offer home buying assistance, or you may be able to borrow from your 401K or life insurance policy if you own a policy with a cash value.
Before you commit to home ownership as a young adult, consider the following:
Are you set in your career? If so, will you work in the same location for at least a few years, or will you be transferred? If you aren’t set in your career, what plans do you have for the future? Will you go back to school, or are you unsure of what you’ll do with your life?
Until you’re settled in your career for at least the next few years, it’s best to hold off on buying a home.
Before you buy a house, think about how far you’ll have to commute to get to your job. Even if it seems doable when looking at homes, a long commute can get old fast. Think of all circumstances too, such as traffic and bad weather.
Local Housing Market
Talk to a real estate agent about the local housing market. Is it a buyer’s or seller’s market? If it’s a buyer’s market, you’ll have an easier time negotiating a lower price. But, if it’s a seller’s market, there’s a lot of buyers, aka competition, and you may easily get priced out of your budget.
The more money you put down on a home, the faster you will build equity. A larger down payment also makes your mortgage payment more affordable. However, you shouldn’t put down so much money that you don’t have any money saved for emergencies or other financial goals.
Mortgage rates fluctuate daily, sometimes even multiple times a day. Don’t get lost too much in the interest rate, but when interest rates drop, it’s best to take advantage and lock in your rate if you’re ready to buy a home and already have your home loan pre-approved.
Owning a home is a large responsibility. If you commit to more than you can afford, you run the risk of losing the home and having nowhere to live. So weigh the pros and cons carefully before deciding.
Is There a Minimum Age to Get a Mortgage?
The minimum age in most states in the US is 18 years old to get a mortgage. But just because you are 18-years old doesn’t mean you’ll qualify for a loan. You must prove you can afford the loan and have the qualifying factors, including meeting the minimum credit score requirement.
What Is the Best Time of Year to Buy a House?
House prices fluctuate throughout the year, but it’s best to buy a house when the demand is the lowest, usually in August. This is when families are settled down and getting the kids ready for school and don’t want to think about moving. If you can handle moving in August, you may have the best chance of negotiating the lowest price.
What Age Is Best to Buy a House?
There isn’t a specific age that is best to buy a house. Instead, focus on your qualifying factors and where you are at in life. When you’ve settled in your career, are ready to live in one area for a while, and can comfortably afford a mortgage payment, it is the best age to buy a house.
What Is the Average Age of First-Time Home Buyers?
In 2021 the average first-time home buyer in the United States was 34 years old. The average age to buy a house has slowly increased every year as making your first home purchase has become more difficult for median-income earners.
How Old Do You Have to Be to Get a Loan?
In the United States, you are required to be at least 18 years old to obtain a loan and sign legal documents legally. Most lenders also want to see proof of income and strong credit history.
At What Age Can You Buy a House?
In most cases, you are required to be at least 18 years old to submit a mortgage application by yourself.
Can You Buy a House at 18?
Yes, you can buy a house when you are 18 years old, assuming you meet all other requirements outlined above.
Buying a house when you’re young isn’t a bad thing, and it can be a great way to set yourself up financially if you’re ready. Homeownership isn’t something you should rush into, though. Instead, take your time, figure out where you’re at in life, including with your career and finances, and buy a house when you feel the most ready and able to afford the mortgage payments.
Samantha uses her BS in Finance and MBA to help others control their finances through budgeting, saving, investing, side hustles, and travel hacking. Due to following the FIRE Movement’s principles, she was able to quit her high-stress job in the financial services industry in July 2019 to pursue her side hustles. She is now a full-time entrepreneur, freelancing coach, and blogger.